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The Acid Test of Disinvestment

In the face of one of the most far reaching economic decisions of the last two decades, that of allowing commercial banks in the private sector, the Nawaz Sharif Government has simultaneously decided to go whole hog for disinvesting the Nationalised Commercial Banks (NCBs), using Muslim Commercial Bank (MCB) as the guinea pig. Leaders of Third World countries are known to usually try and search for windmills off the beaten track to tilt against, another sorry example of negating an excellent decision by a bad one. The NCBs must compete in a free financial market atmosphere and if they fail to stand the heat, to die a natural death by themselves. Given that Mr. Sartaj Aziz has stated that a comprehensive economic reform package revolutionizing Pakistan’s economy would be announced in 6-8 weeks, this unholy, unseemly rush to offload a commercially viable NCB from public sector aegis becomes more mystifying, to say the least.

Bids were asked for in less than 14 days by front-page ADs, offers for MCB being opened on December 26, 1990 in front of a Committee under the Chairmanship of Governor SBP, composed almost wholly of bureaucrats, serving and ex, which made the initial evaluation before sending it onto the Ministry of Finance in Islamabad. In order of priority Tawakkal Group has made the highest offer of about Rs 880 million with two conditions (or rather clarifications) that it has subsequently withdrawn. In second place (Rs 170 million or about 20% behind) is the Adamjee Group which also has a couple of conditions, namely that the option to NIT to purchase 20% shares should not be given. The conditional and phased offer of Crescent Group was next, about another Rs 200 million behind second placed Adamjee. Trailing behind the three BID leaders was the Sapphire Group, while the bid of an entity from UK was disqualified because it did not have a Bid Bond.

Each of the Business Groups, without exception, had the backing of other investors in the form of a Consortium, it is difficult to show “clean” money otherwise. With the subsequent withdrawal of the conditions by Tawakkal, and given that commercial practices are supposedly to be used as a yardstick, it became the most responsive bid, followed by the Crescent Group. Crescent is a strong industrial concern having an investment bank, Cresbank, already approved and functioning. Sapphire is also a strong industrial and commercial house with an excellent market reputation. Despite being a household name in Pakistan, Adamjee remains the weakest of the bidders, failing to command the same credibility that this Business House once used to have.

The essence of deregulation and privatisation is that instead of spreading of largesse by bureaucratic fiat, market forces decide the winner. In effect it is the law of the jungle where only the fittest survive by sheer weight of merit. One of the surest barometers of this market jungle is the Stock Exchange, in this case the Karachi Stock Exchange (KSE). A study of the prevailing share values in the KSE Annual Report 1990 is very revealing, while companies of all the other Business Groups are mostly healthy and flourishing, declaring regular Dividends and Bonuses, Adamjees seem to be in real trouble. Except for one solitary publicly listed company, Adamjee Insurance, whose share price has fallen from a HIGH of Rs 117.75 in 1985 down to Rs 47.50 per share in 1990 (still much above the par value of Rs 10.00), every other listed company is trading far below par value, in some cases even less than one fifth the value, having not declared any Dividend or Bonus for the last four/five years. This reflects a severe loss of market confidence, investors clearly do not consider the Adamjee companies having either financial stability and/or having good management, KSE provides the most effective display of investor street power in Pakistan. There is a lurking suspicion that Adamjee is using its name/previous owners status as a broker/front man for others.

Based on the bids it should thus be a triangular fight between Tawakkal, Crescent and the Sapphire Groups, but the feedback that is generally current is that instead of one of these three financially healthy Groups, Adamjees are rumoured to be effectively the front runner, possible only with the help of a number of effective Godfathers in political circles and the bureaucracy. Rumours also exist of the lurking presence (behind the scenes) of one senior personage of Habib Bank, who Reagan-like has a Teflon-hide (no allegations or accusations to sticks to him). This same gentleman was the prime force behind the loans/advances alleged to have been improperly rendered (and with unseemly haste) to Global Marketing Ltd (GML) for its Duty Free Shops (DFS) venture during the Benazir era. Fauzi Ali Kazmi, the major shareholder of GML, was generally rumoured to be a front man/associate of Asif Zardari (vehemently denied by both sides, at least in public) and was incarcerated for some months after the fall of Ms Benazir’s Government before release on bail fairly recently. One has to conclusively prove that Fauzi Kazmi did something illegal, which purely on business criteria cannot be done, hearsay evidence being legally untenable. If the Habib Bank (HBL) gives him favoured-son treatment because of some unearthly reason, then Habib Bank’s senior officials are the ones who should be enquired from, why should one deny any businessman his legitimate right in obtaining (or trying to obtain) a loan as long as he furnishes adequate securities? Asif Zardari’s alleged misdemeanours with the grant of permission for the Duty Free Shops and the sanctioning of the loans/advances by the Banks do not stand in the face of continuance in office of HBL’s senior-most executives. DFS for Fauzi Kazmi was sanctioned by the Ministry of Finance through the CBR, the project could not have got off the ground without the credits being approved by Habib Bank’s hierarchy. Mr. Safdar Zaidi, may have been removed as HBL President, the rest remain comfortably warm in their seats, senior-most among them being Mr. Younus Habib, the Provincial Chief of the HBL Sindh. All this lends credence to the fact that wrongdoing, if done, has been condoned by the new Government.

Mr. Asif Zardari was unfortunate in being the husband of the former Prime Minister. As is usual in such cases, people, like the Habib Bank personage/s aforementioned, crawled around him, some even physically sitting at his feet evening after evening, replete with “legal” schemes (or scams) to implement, complete with instant credit at the beck of a call. Asif Zardari, fresh into power politics and having cursory knowledge of Client-Patron relationship thereof, could have been unwittingly used as a dupe. That the unrestricted use of his name to circumvent norms and regulations became fashionable is not new to Pakistan or the Third World, maybe Asif Zardari could have been more circumspect himself and/or exercised greater discretion in the choosing of his friends and associates, but what of those among the bureaucrats, semi-bureaucratic or public sector commercial elite who survive regime after regime, changing Godfathers as per requirement? In fact it is they who are the main perpetrators of any illegalities or scams, possessing an uncanny ability to tar and feather their former mentors as soon as their respective sun sets, scrambling willy-nilly to ally themselves elsewhere. The business and financial market is presently agog with the indiscreet and vociferous representations of one particular Habib Bank personage about his “clout” in various governmental circles. Preposterous as it may seem, this gentleman does not even spare the men-in-uniform, he has boasted recently to a group of bank executives (“confidentially”, of course) how he was leading these babes-in-the-financial jungle by the nose in establishing a new private commercial bank! Whether it is true or false, God alone knows, one thing is certain, this state of affairs is atrocious. As long as we are subject to such extra-legal pressures, any hope of economic emancipation will come to naught, the simple replacement of Godfathers means “business” is very much as usual.

Raja Abdul Rehman, President FPCCI, has protested in a Press Conference on January 2, 1991 that an unholy exercise is being conducted to hand over the MCB to the Adamjees. Some of the companies in the Adamjee Group have defaulted on repayments of Principal and interest to the NCBs and DFIs for years, some of the default seems even exceeding the Adamjee bid price for the MCB. The FPCCI President seems to be speaking from sorry and bitter experience, this senior businessman’s higher bid for the Hotel Intercontinental chain was refused in favour of a much lower bid by a Committee (or Club) of bureaucrats. Why should any bureaucrat sit on the Disinvestment Committee, don’t we trust and respect the opinion of the Governor SBP and/or our elected legislators?

The privatisation of the MCB has thus become the acid test of the new Government’s intention with respect to disinvestment. The hidden benefit of an incorrect decision is that it will create a public hue and cry, such a groundswell should expose the perennial manipulators. It is not too late to make the selection a public event. Treat the four bidders as successfully pre-qualified and with Rs.56.00 per share as the reserved price hold an open auction among them, the highest bidder being declared the winner so that accusations of possible favouritism are pre-empted. If the Prime Minister is really serious about invigorating the economy he must ensure that the rule of merit is upheld as much as the rule of law. The exercise of privatisation must be fair as it stands to set the trend for the economic future of Pakistan. On the other hand, if the MCB had to be handed over to any favourite, why test the public’s patience and credulity with a less-than-honest public tender offer?

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