Acquisition of RBS operations: MCB moves Supreme Court against SBP

The MCB Bank on Tuesday moved the Supreme Court of Pakistan against the State Bank of Pakistan for the latter's refusal to grant regulatory approval to its acquisition of Royal Bank of Scotland's local operations. The MCB Bank, after it obtained the formal approval of SBP, conducted due diligence of RBS and finalised a deal for the acquisition of bank's local operations.
The MCB board in its meeting on August 8, gave approval to the proposed acquisition of RBS Pakistan, subject to regulatory approvals and signing of the share purchase agreement. However, the SBP has not granted approval for the last three months for non-compliance of sponsor shares requirement by the MCB Bank sponsors.
As per the SBP's sponsor shares circular, sponsors of banks are required to deposit their shares in a blocked account with CDC in order to ensure continued stake/ownership of sponsors/major shareholders in the bank. However, the MCB Bank has not fulfilled the said requirement and sponsor shares of MCB Bank have not been deposited in a blocked account.
Therefore, the central bank has withheld an NOC for the purchase of RBS shares by MCB Bank. However, the SBP did not raise any objection at the time of granting due diligence approval to MCB Bank, after which MCB Bank went into negotiations with the RBS management for the purchase of local operations. The SBP raised objection just after the two parties had finalised the deal. The MCB management had several correspondences with the central bank for the purpose of an NOC.
Representing the MCB Bank, Advocate Khalid Anwar has filed a petition in the Supreme Court against the SBP for not granting the regulatory approval to the acquisition of RBS operations. Mian Muhammad Mansha, sponsors of MCB Bank, has argued that the regulation is applicable on past deals and this requirement is unjustified as it is not the norm in other parts of the world.
Normally, in such acquisitions, deal-seeking regulatory approval is the obligation of the acquirer and the seller seeks damages (which in this case is said to be around one billion rupees) upon failure of the acquirer to close the deal. It is believed that December 31 is the deadline provided to MCB Bank to conclude the transaction, which includes an approval from the SBP and the SECP and a mandatory offer from other mandatory shareholders, who hold only 8 percent shares in the bank.