The acquisition of Atlas Bank is a part of the series of deals by the Mauritius based investment firm, Suroor Investment. The common feature of all the three deals is that the banks lacked the potency to meet SBPs minimum capital requirement and were actively looking for a buyer.
High non-performing loans with low-coverage ratio were also common features of these loss making banking entities. Interestingly, the deals come in the backdrop of the market noise that famed banker Hussain Lawai who is currently heading Arif Habib Bank - one of the three acquisitions by Suroor - is seeking to merge these banks into one entity under his umbrella.
Considering that the acquirer didn even conduct due diligence in its last two deals - My Bank and Atlas Bank as it relied on the diligence performed by many of those previous unsuccessful suitors - it makes one wonder why is Suroor so keen to increase its presence in Pakistan.
There are many small banks in Pakistan looking for a buyer as they aren able to manage the business themselves in the backdrop of poor economic fundamentals, bleak law and order situation and the inability to meet the central banks minimum capital requirement.
But despite this supply, foreign banks currently operating in Pakistan including Citibank N.A, HSBC and Barclays have shown little or no interest in purchasing these small local banks. Having seen the outcome of SCB-Union and ABN-Prime Bank deals, they are choosing to rely on organic growth instead of buying it off the shelf.
Sources say, a UAE-based investor is behind Suroor and Lawai is the front man, adding that they are generally very bullish on Pakistans economy for some unknown reasons. Case in point: the highly priced PTCL buy off by Etisalat - besides, investing $80 million dollars in three small banks is quite literally peanuts for the rich Arabs. Even these banking deals are at a 7 to 30 percent premium to their non-provided book value (post-tax adjusted), unlike the latest MCB-RBS deal, which was at a discount to the book value.
One possible answer can be arrived at by drawing out parallels to Shaukat Tarin, the former banker turned finance minister who bought Union Bank Limited many years ago. At that time, Union Bank had a portfolio similar to these banks and Tarin with his vast banking expertise turned it around into a success story and sold it off at very good price.
Perhaps, the UAE investor might be relying on Hussain Lawai to pull off a similar stunt by merging three loss-making banks, turn the new entity around and sell it when the time is right. Yet, given the inter-cannibalization of portfolio of the three similar sized lenders with no or little synergies makes one clueless about the rationale of these deals.
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Acquisitions by Suroor Investment Atlas MyBank Arif Habib
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Transaction date Nov-23-09 Oct-01-09 Jul-02-09
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Shares purchased 58% 59% 59%
No. of shares transacted (bn) 0.29 0.31 0.30
Deal Value (Rs bn) 1.31 2.52 2.67
Per share price (Rs) 4.5 8.0 9.0
Book Value (Rs) 5.2 11.4 10.7
Book Value tax adjusted for non covered NPLs (Rs) 3.5 7.5 7.6
Premium to adjusted Book Value 29% 7% 19%
Number of Branches 82 38 40
Loss per share (Rs) 2.2 2.9 1.7
NPLs/Gross Advances 11% 29% 20%
Coverage ratio 43% 51% 34%
Paid Up Capital (Rs bn) 5.0 5.3 5.0
Required paid up by Dec 9 (Rs bn) 6.0 6.0 6.0
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Data as of Sep 9 - Source: Company reports, BR Research and KSE notices.