MCB Bank has bought the Pakistan operations of the Royal Bank of Scotland (RBS), paying a price of PRs7.2 billion ($87.4 million) for a 99.37% stake in RBS Pakistan.
The agreed price represents a price-to-book-value ratio of 0.73 times based on a book value of RBS of PRs9.9 billion at the end of the first quarter of financial 2009 and 0.72 times fiscal 2008 book value.
Others buyers reported to have been interested in the asset include two Pakistani banks, Habib Bank and JS Bank, as well as Egypt's Orascom Telecom Holding. All other bidders dropped out by stage two, said a source close to the situation, and the deal was finally negotiated on a bilateral basis between MCB and RBS. Sources add that within Pakistan a domestic buyer was the preferred outcome for the deal.
MCB will finance the deal from its balance sheet. MCB's chairman Mian Mansha is generally credited with growing the Pakistani bank into a force to be reckoned with. Mansha engineered the sale of 20% of MCB to Malaysia's Maybank in May 2008, achieving a valuation of 5.1 times book value for a non-control transaction.
The RBS deal gives MCB an incremental branch network of 79 branches (including three Islamic banking branches) to add to its existing 1,026 branches. RBS also has a well-regarded private banking business in Pakistan, which will consolidate MCB's position in wealth management.
MCB was represented by Bank of America Merrill Lynch and its local Karachi-based partner KASB. RBS is being represented on the sale of its Asia assets by Morgan Stanley.
The deal follows less than a week after RBS sold assets in Hong Kong, Indonesia, the Philippines, Singapore, Taiwan and Vietnam to the Australia and New Zealand Banking Group for $550 million, which represented about 1.1 times book value.
RBS acquired the Pakistan assets as part of its takeover of ABN AMRO in 2007.
In March 2007 ABN AMRO had agreed a valuation of $244 million to acquire majority control of Pakistan's Prime Bank in a move which made the Dutch bank the second-largest foreign bank in Pakistan. The price represented over four times the net asset value of Prime Bank and increased ABN's branch network seven-fold.
ABN's deal followed the acquisition by Standard Chartered of Union Bank for $510 million, representing 5.6 times trailing book value.
Compared to the price paid by ABN for Prime Bank, Mansha has got himself a bargain. "The deal proves once again that MCB is an astute buyer of assets," said a source close to the situation.
But, in the last two years, both the global banking industry and the risk perception of Pakistan have changed dramatically.
Other banks said to be interested in growing through M&A in Pakistan in 2007 were Barclays and HSBC. Barclays has weathered the subprime crisis better than some of its British peers, but is likely to be still preoccupied with balance sheet issues. HSBC was one of the banks reported to have done due diligence on RBS's Asia assets but finally chose not to table a bid. As for US banks, many of them are currently distracted by their home economy and M&A is not something they are pursuing actively.
With respect to Pakistan, recent events have heightened the sensitivity of the international community to the geo-political risk of doing business in the country. This has taken a toll on the domestic stock market which was touted earlier this decade as the best-performing stock market in Asia.
A large chunk of RBS's Asia business, for which a buyer is yet to be announced, lies in India and China. Sources say that Standard Chartered has agreed to buy the RBS retail and commercial businesses in these two countries, but since both are highly regulated banking markets, Standard Chartered is trying to secure the necessary approvals for the deal before a formal announcement is made.