Cabinet Committee on Privatisation (CCoP) has decided that recoveries made by National Bank of Pakistan(NBP) from the legacy portfolio of SME Bank, inherited from Regional Development Finance Corporation (RDFC) and Small Business Finance Corporation (SBFC) will be deposited in the federal consolidated fund (FCF), sources close to Finance Minister told Business Recorder. The decision was taken at a meeting of CCoP held on January 27, 2017 under the chairmanship of Finance Minister, Ishaq Dar.
According to sources, Privatisation Division revealed that the Financial Advisors had completed the due diligence of SME Bank Limited. Based on the due diligence, initial discussions held with the State Bank of Pakistan (SBP) and the guidelines provided by it, the transaction structure was submitted to the PC Board, in its meeting held on November 14, 2016. However, concerns were raised by the Financial Advisors namely that the transaction, as per the proposed transaction structure, may not be viable from the perspective of prospective investors, and, therefore, may hinder its marketability.
PC Board directed to re-engage with SBP for relaxations in the proposed guidelines, and to resubmit the transaction structure to the Board. Pursuant to the directions of the PC Board, the PC and the Financial Advisors held detailed discussions with SBP, following which SBP agreed to revise the guidelines in its letter December 16, 2016 written to PC. Accordingly, in light of the revised guidelines, the Financial Advisors presented their recommendations for the transaction structure to the PC Board on January 17, 2017 which deliberated upon the recommendations, and recommended the following transaction structure for considerations and approval of the CCoP: (i) privatisation of SME Bank Limited through sale of 93.88% shareholding of the Government of Pakistan in SME Bank; (ii) SBP to issue a new banking licence of a specialised nature to the investor (with the condition that at least 60% advances are to be for SME sector); (iii) SBP to allow a reduced Minimum Capital Requirement (MCR) of Rs 6.00 billion on staggered basis over five years (Rs 2.00 billion upfront and Rs 1.00 billion each for next four years). However, no dividend payments would be allowed till compliance with prescribed MCR or for a five-year period post-privatisation, whichever is earlier; (iv) SBP to allow Capital Adequacy Ratio (CAR) at 10% for five years post-privatisation; (v) SBP to provide platform for delivering branchless banking /digital finance/fintech banking services and specified schemes, subject to fulfilment of applicable requirements; (vi) fully provided ''legacy portfolio'' of SME Bank, inherited from the RDFC and SBFC, not to be made part of the transaction and to be removed from the books of SME Bank; (vii) the claim on Capital Development Authority (CDA) plots measuring 4,667 square yards in Islamabad''s sector G-5/2 and 500 square yards in sector G-7 not to be part of the transaction; (viii) Federal Board of Revenue (FBR) to consider withdrawing all tax cases pending before appellate authorities (tax tribunal & High Court) or the potential buyer to be indemnified by the GoP against any negative outcome subsequently as a consequence of existing tax exposure; (ix) the potential buyer to be indemnified by the GoP against any negative outcome as a consequence of employees'' litigation matters; (x) no severance scheme to be offered to employees; and (xi) SME Leasing Limited (SME Leasing) to remain part of the transaction on "as is basis".
The sources said CCoP extensively discussed the recommendations of the PC Board. The recommendations regarding the legacy portfolio of the SME Bank, presently held by the National Bank of Pakistan, the claim on CDA plots and the recommendation regarding severance/retrenchment of the employees, were deliberated upon threadbare. CCoP was also apprised about the litigation/court verdicts regarding regularisation of the employees or otherwise. The legal counsel of the SME Bank stated that there were two different petitions and the verdicts of both the petitions were different. Chairman PC clarified that the court verdicts were flexible and not binding. After a detailed discussion, the CCoP argued that the service matters of staff of SME bank should continue to be governed in accordance with the existing terms and conditions of service, and advised PC to obtain opinion of the Ministry of Law and Justice on employees'' related litigation/court verdicts. CCoP also observed there was a need for further deliberations on issues related to the legacy portfolio and the issue related to claim on the CDA plots and therefore desired to defer decision on it.
After a detailed discussion, the CCoP approved the proposal and directed that recoveries made by National Bank of Pakistan (NBP) from the legacy portfolio of SME Bank, inherited from Regional Development Finance Corporation (RDFC) and Small Business Finance Corporation (SBFC) be deposited in the federal consolidated fund going forward.
CCoP also directed that the matter of ownership of plots will be reviewed by CDA and the Ministry of Finance and the outcome will be reported to CCoP. It was also directed that services matters of the employees will continue to be governed by the existing terms and conditions of service. Privatisation Commission will obtain opinion of the Law Ministry on employees- related litigation/court verdicts.
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