The Privatisation Commission (PC) has decided to include Small and Medium Enterprises Bank (SME Bank) in the privatisation programme, but transaction process would not be finalised without prior clearance from the Asian Development Bank (ADB).
Official sources told Business Recorder that the Finance Ministry had asked the PC to include SME Bank in the privatisation programme, saying that it must be ensured that the specific focus of the bank is maintained during the privatisation transaction. Sources said that the Ministry had proposed two non-mutually exclusive mechanisms to deal with such kind of transactions as follows:
i) Designing, screening and documentation, which would ensure that only those parties are pre-qualified which have experience in financial intermediation activities in the SME sector or have created a consortium that includes/incorporates expertise.
ii) Incorporating within the sale agreement such conditions that would ensure, for a specific time period, the provision of financial services to the SME sector.
"Incorporation of any such mechanisms can generate barriers to the entry for potential investors and whatever transaction structure is ultimately chosen will have to be the best compromise between maintaining the specific focus on the bank in making the transaction attractive for sale," the Ministry said.
Sources said that such mechanisms would also increase the technical complexity of the screening documentation, the pre-qualification process and the sale agreement.
They said that the PC expressed disagreement with the mechanisms floated by Finance Ministry and recommended to the Cabinet Committee on Privatisation (CCoP) that an SME Bank transaction committee be constituted, taking on its Board senior representatives of the PC, Kamran Shahzad, Senior Executive Director, BPD, State Bank of Pakistan (SBP) and Nazrat Bashir, Joint Secretary (IF), Finance Division, as members to oversee the process.
The committee would also be responsible to review potential transaction structure(s), documentation and recommend the agreed criteria to the PC, board, PC said.
Sources said that GoP has also entered a loan agreement, with the ADB, SBP, SME Bank, and Smeda as signatories. Thus, interaction with ADB would be required at the time of designing and execution of the transaction.
"Assistance from the ADB in screening and hiring an SME Bank expert will also be sought, preferably through grants," sources said, adding that the transaction was very complex that could take more than a year to execute.
Total shares of the SME Bank are 150,000,000, of which GoP holds 139,023,682 (92 percent), NBP 4,590,936 (3.06 percent), IDBP 214,615 (0.14 percent), UBL 2,981,327 (1.99 percent), HBL 1,490,663 (0.99 percent), MCB 1,117,992 (0.75 percent), and ABL 580,778 (0.39 percent).
It is pertinent to note that the bank's Board members are seven, none of them has any share in it.
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