It isn even a month since the British Virgin Islands based company, Vision Financial Holdings Limited (VFHL) showed its intent to buy a strategic stake of 49.11 percent (or 492.4 million shares) in Meezan Bank, the leading Islamic bank of the country. The stake is currently held by Kuwait based Noor Financial Holdings Limited (NFHL).
At that time, sources privy to the bank told BR Research that since the bank is making phenomenal profits and has bright prospects amid the reversal of monetary cycle, the deal will only be struck given NFHL is offered the desired compensation from the potential acquirer.
With the average Price-to-Book Value (PBV) of 1.7 times of the listed commercial banks, Meezan Bank enjoys the second highest PBV of 2.29x (the highest being MCB, 3.06x).
The punters at KSE and the local brokerage houses expected the deal to strike at a PBV of 2.5x to 3x as the strategic shareholding is usually sold at premium and given the rally expected in the banking sector on the back of strong balance-sheet growth and marked improvements in asset quality that could counter stricter regulations on the margins front.
Besides, the upbeat expectations were also a result of the fact that Meezan, being a shariah-compliant bank, doesn fall under the ambit of minimum deposit rate regulation imposed by SBP lately is likely to perform better than the lot. Market players expect Meezans PBV to hit 2.6x after incorporating the impending rate-hike of 100 basis points in CY14. Long story short, market expected the strike price of Rs48-50 per share.
Yesterday, the KSE notice settled the dust whirling around the deal whereby the transaction between NFHL and VFHL settled at the value of $190 million or KD53.5 million which will offer NFHL a profit of $24 million on its books. The deal is expected to materialize sometime in 2014.
The deal price roughly translates into Rs.20.44 billion or Rs41.32 per share which is even lesser than the lower leg of the market projections. However, if we evaluate the deal in-terms of peer group PBV, the transaction implies an attractive PBV of 2.4x which puts to shame the peer group average PBV of 1x.
Whether the market overpriced the deal or NFHL was in hurry will be figured out soon based on how MEBL brings off in the coming times, time will tell.
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