The Pakistan government offloaded its entire stake in Habib Bank and raised $992.7 million in the country’s largest-ever share sale, the latest transaction in the country's privatisation drive.
The government, which previously owned 41.5% of Habib Bank, sold all 609.3 million shares and raised PRs101.1 billion ($992.7 million) from the sale, according to a source close to the deal.
The base deal consisted of 250 million shares, or 17% of the bank’s outstanding capital, worth $407.3 million. The source noted that strong institutional demand, mainly foreign, allowed the issuer to exercise the upsize option and tack on an additional 359.3 million shares to the base deal. This added $585.4 million to the share sale, bringing the total deal size to $992.7 million.
Credit Suisse and Deutsche Bank handled the transaction, which had a floor price of PRs166 per share, representing a 10.6% discount to the April 3 closing price of PRs185.62. Habib Bank’s market capitalisation is PRs272 billion, and has roughly 1.47 billion shares outstanding.
Allocations were still being finalised on Friday afternoon, but the source noted that well over half of the deal went to international long-only institutional investors, with domestic funds making up the remainder. “When allocations are finalised, it will be more skewed towards internationals,” the source told FinanceAsia, estimating international firms would receive well over 60% of the book. “It was well covered.”
There were quite a few lines in the book, but the source noted that there were a lot of small orders placed for $1,000 each, and so the number of participants wasn’t necessarily representative of the deal.
Dealogic ranks it as Pakistan's largest-ever ECM deal.
In addition to being the country's largest deal, the size was particularly noteworthy given how little Habib trades each day — on Friday, the day books closed, its trading volume was 141,800.
But the secondary share sale should improve Habib’s trading activity and help in efficient price discovery, argues research firm Topline Securities.
Despite poor performance — Habib is down 16% so far this year — analysts believe Habib’s strong deposit base, large branch network, and ability to generate low-cost deposits make it an attractive investment opportunity as Pakistan continues to open its capital markets. Habib stands to benefit from improving macro-led credit growth, with its capital adequacy ratio standing at 16%.
Habib is the market leader in Pakistan in terms of branches and deposits, operating 1,600 branches in a total industry network of 10,273, with a deposit base of PRs1.52 billion, or 18% of the industry total. A focus on retail banking has enabled its deposits to grow at a five-year compound annual growth rate of 17%, compared with the industry average of 14%, Topline research notes.
Books opened on Wednesday. News of the share sale sent Habib’s shares up 5% in the past two days.
The deal comes nearly 10 months after the government sold its remaining stake in United Bank, raising $387.9 million in the secondary share sale last June.
The United Bank deal was the country’s largest ever ECM transaction last year, ahead of Pakistan Petroleum’s $155 million follow-on offering in the same month and Allied Bank’s $143 million secondary share sale in December 2014, according to Dealogic data.
The government was not successful in all of its ECM transactions last year, scrapping a 10% sale in Oil & Gas Development, the state energy company, in November after lukewarm investor response. When only half of the shares on offer were purchased, the government shelved the deal. At the time it was seen as a blow to the country’s efforts to kick-start the economy.
The Habib share sale likely comes as a relief as the country continues to re-open its capital markets amid a spate of reforms.
Nawaz Sharif, who was sworn in as the country’s prime minister for a third time in June 2013, controls almost half the seats in parliament, which allows his Pakistan Muslim League N-party to govern without a chunky coalition partner. That gives it more freedom to implement a reformist agenda.
Since inheriting a troubled economy, energy crisis and worsening security situation, the government has cut subsidies and eliminated some debt from the electricity sector. It also negotiated a $6.6 billion deal with the International Monetary Fund to prevent a default.
The country’s fiscal deficit stood at a record 8% in 2012. It has since dropped to 6% and the government is targeting 4.8% deficit by 2015
This item was updated April 12 to include information about Pakistan's privatisation push.