KSE raises governance standards – Alfalah Securities Limited

Karachi: Karachi Stock Exchange has sought clarifications from NIB Bank and Askari Bank on rumours/talks of sale out by their current sponsors.

According to Alfalah Securities Limited has evaluated the impact of both these cases below:

(i) NIB Bank
NIB Bank has denied the rumours relating to sale of its shares by majority shareholder Bugis investments (Group Company of Temasek Holdings – Singapore). This denial has come in response to a letter written by KSE asking them to clarify the issue as a news item appeared in the local newspapers that Temasek Holdings intends to sell its majority shares in NIB Bank.

As a result of this news, the stock price jumped up by 19% in 3 trading sessions with relatively better volumes. The denial during the trading hours failed to affect the price of the stock; in fact the price was up 1.8% yesterday to close at PKR 1.71 indicating that investors may potentially be taking a bet on new management (Mr. Badar Kazmi, ex CEO of Standard Chartered Bank) rather than on current sponsors selling the stake.

Low absolute value of the stock also attracts small traders to play in the stock. Alfalah Securities Limited recommends investors to HOLD the stock and wait for the new management to come up with a strategy to induct growth. The stock trades at historical P/B of 1.1X which is at a premium than its small sized peer group. The stock has already underperformed the index by nearly 36% (index down 5%, stock down 41%) since Jan 1, 2011. HOLD the stock.

(ii) Askari Bank
Army Welfare Trust (AWT), the main sponsors of Askari Bank (AKBL), in response to letter from KSE has disclosed they have received a non binding indicative offer from Fauji Foundation (owners of FFC, FFBL, Fauji Cement) to purchase the entire stake (50.6% or 357.53m shares) of AKBL held by AWT. In this regard, AWT has put forth an application to the State Bank of Pakistan (SBP) for an in-principal approval to proceed for the proposed acquisition.

Apparently, AWT is having liquidity issues in raising the capital of the bank to meet growth demands and to meet Minimum Capital Requirement (MCR) set by SBP. In case this transaction goes through, Alfalah Securities Limited feels Fauji Foundation would turn out to be a stronger party not only in terms of increasing capital but as better managers keeping in view their past record. We recommend clients to BUY the stock based on attractive valuations and expectation of sale out to a stronger party. The stock trades at 0.38X CY12 book value.