KARACHI – The Abu Dhabi Group (ADG), one of the largest investment groups in Pakistan, has rejected merger offers from over half a dozen banks, including Silk Bank, Pakistan Today has reliably learnt. The UAE-based investment group has been in the limelight since last week with local media coming up, with what the Group Chairman Shaikh Nahayan Mabarak Al Nahayan Monday, dismissed as “baseless, untrue” reports that Bank Alfalah Limited (BAFL) was either on sale or was to merge or acquire a financial institution, reportedly the Silk Bank.
In a briefing here Monday, Sirajuddin Aziz, flanked by ADG Board of Director Ikram ul-Majeed Sehgal, rejected outright reports that the group was pulling out of Pakistan and said Bank Alfalah was neither up for sale nor in a merger talks with any financial institution. “All reports to this effect are vehemently denied,” Aziz quoted the ADG chairman as saying. “While some members of Abu Dhabi Group have sold their stake in United Bank Limited, the group’s chairman… has retained his personal stake/holding in UBL where he continues to be the chairman of the board of directors,” he added. Contrary to rumours, the group will be expanding its present investment base of over $2.0 billion through revitalising ailing organisations like Warid and Wateen Telecom, the BAFL chief told Pakistan Today after the press conference.
According to industry sources, given the prevailing global economic downturn the group was vigorously looking for more investment opportunities in potentially lucrative like Pakistan. “The appointment of Zohair Khalique (at the helm of Warid and Wateen) is to part of a bid to make the two companies a success in Pakistan,” they said. On the reported merger, the sources indicated that six to seven small banks, perhaps faced with problems in meeting minimum capital ratio, had offered the ADG a merger with BAFL, but the group had apparently never welcomed any offers.
“Recently, the Silk Bank gave a presentation to Sheikh Al Nahayan some six months ago but the offer was declined,” the sources told Pakistan Today. When asked if the bank was reluctant to go for a merger, the sources responded by saying that, “if they see a good an attractive acquisition they will take it.” They also opined that, “unlike other banks, Bank Alfalah was performing well and has the luxury of choice.” Key players of ADG like Bashir Tahir and his brother Pervez Shahid have tendered their resignations on Saturday, citing personal reasons.
Tahir and Shahid were heavily involved in the running of almost all major ADG-owned organisations like Bank Al-Falah, Warid Telecom, Wateen, amongst others. They were serving in the capacities of, respectively, chief executive officer and the BAFL’s executive in-charge of strategic planning division and authorised power of attorney holder for Warid Telecom.
About the “rumors” recently surfacing on a section of media, the sources accused Pervez Shahid of planting the stories in some newspapers. “It seems he was not happy with the group,” they claimed. While the Abu Dhabi Group has denied it, analysts such as Khurram Shehzad of Invest Capital Investment Bank (ICIB), believe that negotiations for a merger are proceeding. “The merger will happen because, despite the recent resignations of Bashir Tahir and his brother Pervez Shahid, the board meeting was held,” the analyst told Pakistan Today on Sunday.
The analyst indicated that Silk Bank was running short of the minimum capital requirement limit set by the State Bank adding that given increased competitiveness in the overall industry and ballooning non-performing loans (NPL) of the banks, mergers and acquisitions had become a matter of survival for many small banks.
“The five big banks are raking in 90 to 95 percent of total profits leaving other banks with few options other than mergers and acquisitions to compete,” Shehzad said. In this regard, the amalgamation of Atlas Bank, Arif Habib Bank and My Bank Limited into Suroor Investments Limited aptly illustrates the point.
The State Bank in its Financial Stability Review 2009-10 has also warned that, “Some small banks were unable to withstand the various negative developments in their operating environment and are now in an increasingly vulnerable position.” The central bank termed the record rise, since 1997, in NPLs and the current minimum capital requirements as major contributing factors in this regard. It said the banks’ bad debts had hit a historical high of 24.2 and 6.4 percent to stand at Rs 432 billion and Rs 460 billion, respectively, in CY2009 and by end-June CY10. “The increased risk to the solvency position is… readily apparent from the surge in the net NPLs to capital ratio in the banking system to 20.4 percent from 19.4 percent in CY2008,” it cautiously observed.
