Investment

Banking
Final Project

Neha Asif, Hamza Shehzad,

12/26/17 Ma’am Nida Aman
Obaid Bokhari
Contents

Acknowledgement......................................................................................................................................3
introduction to the project...........................................................................................................................4
history of habib bank limited.......................................................................................................................5
shareholding structure.............................................................................................................................6
the sponsors.............................................................................................................................................6
entity rating.............................................................................................................................................6
initial public offering (ipo)..........................................................................................................................7
expenses to the issue.............................................................................................................................10
commission to the bankers to the offer..............................................................................................10
brokerage..........................................................................................................................................10
expenses of the offer for sale of shares..............................................................................................10
analysis.....................................................................................................................................................11
conclusion.................................................................................................................................................13
ACKNOWLEDGEMENT

It is not until you undertake a project like this one that you realize how massive efforts it really
is, or how much you must rely upon the selfless efforts and goodwill of others. We got an
opportunity to learn and experience ethics and environment of bank. We wish to express our deep
sense of gratitude to our teacher Ma’am Nida Aman, Lecturer Investment Banking of BBA.
Whose teaching has made us enable to understand the financial conditions of a firm and to do
analysis on its financial strength.

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Introduction to the Project
The project which we have taken is “IPO of HBL”. In this we have studied that how the IPO of
HBL has impacted on its financial strength and how it was perceived by the investors. It also
stated the history of HBL that when it was nationalized and the privatization process. The IPO of
HBL is an analysis of the IPO’s which have a great contribution in the development or growth of
the bank. It also explains the preferences of Investors about investments in the bank’s shares.
What factors an investor viewed to determine the answer should s/he make an investment in the
IPO of HBL.

This report is divided into the phases. Background, in which we discussed in detail about the
history of HBL. That when it was formed and how it was nationalized and then privatized. The
second phased discuss about the process of Sales of Habib bank’s shares to the general public. In
the third and final part we analysis the impact of IPO on Habib banks’ functions, growth.

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HISTORY OF HABIB BANK LIMITED

HBL was established on August 25, 1941. At the time of incorporation, the Bank had a paid-
up capital of PKR 2.5 million. Following the creation of Pakistan, the head office of the
Bank was shifted to Karachi in 1947. The early years of the Bank were characterized by
strong growth profitability, branches, deposits and advances. The Bank entered into the
international market in 1951 and opened its first overseas branch in Sri Lanka. Subsequently,
the Bank expanded its presence to Africa, America, Europe, Far East, South Asia and the
Middle East.

HBL was nationalized under the Nationalization Act, 1974 on January 1, 1974. During the
early 1980s the Bank played its part in economic development and extended credit facilities
to many sectors at subsidized rates under various arrangements including export finance,
local manufactured machinery, government borrowing for commodity operations, mandatory
production credit to small farmers and direct industrial investment. In addition, the Bank
continued to expand its overseas network and opened branches in France, Belgium, Turkey,
Netherlands, Maldives, Seychelles, Bangladesh and the Islands. During the late 1970’s and
early 1980’s, HBL accounted for a major share of the inward remittances routed through
official banking channels. Habib Credit and Exchange Bank which was incorporated in 1992
was a wholly owned subsidiary of HBL. Habib Credit and Exchange Bank was sold off to
the Abu Dhabi Group (UAE) by the PC in 1997 through open bidding.

Under the GoP reforms, efforts were initiated in 1996 to prepare the Bank for privatization.
Accordingly, senior experienced bankers were hired from reputable foreign banks to
reinvigorate and restructure the Bank. In addition to implementing a financial re-structuring
program, where the Bank was recapitalized through the issuance of right share amounting to
PKR 8 billion, the management also implemented a staff and branch rationalization plan.
Consequently, some of the branches were closed or merged and the staff strength was
reduced from 31,099 to 14,572.

As part of the privatization strategy, the GoP initiated the privatization of HBL in 2000.
Through the defined process, 51% shares of HBL were acquired by the Aga Khan Fund for
Economic Development (AKFED) for a price of PKR 63.68 per share and the management
of the Bank was transferred on February 28, 2004. Key initiatives introduced since
privatization include (a) upgrading the IT and communication system (b) strengthening
management and enhancing its capacity and (c) rebranding and repositioning the Bank in the
domestic as well as in the international markets. As a result of these initiatives, the Bank’s
core banking system has been fully upgraded and as of December 31, 2006 271 branches are
online, while over 1,000 branches are expected to become online by the end

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of 2007. Strategic measures have been taken to position the Bank for expansion in high
growth markets such as in Africa, Central Asia and the Middle East. An ambitious progress
for upgrading the branches is underway. Service levels have been improved and overall deli
very channels have been strengthened. Staffing levels have been further rationalized and
general skills at all levels have been improved.

The professional management of AKFED introduced a number of initiatives to revamp the

Bank and to establish policies, procedures and systems in line with modern banking
requirements. In addition, the management also outlined a long-term strategy for the Bank to
ensure that the Bank continues on the path to recovery. Under the management of AKFED,
the Bank has shown exceptional progress as evident from its increasing deposit base, soaring
advances and improving income.

SHAREHOLDING STRUCTURE
The Bank was privatized in 2004 with 51% of its shares sold to AKFED. Furthermore, SBP
holds 48.047 of the total paid up capital, and the remaining 0.953% is held by National Bank
of Pakistan (Trustee Department), Privatisation Commission, Government of Pakistan and
SECP.

THE SPONSORS
The Sponsors comprise of AKFED (Agha Khan Fund For Economic Development) holding
51% stake in the Bank while the State Bank of Pakistan holds 48.047% share in the Bank.

ENTITY RATING
The Bank has been assigned a long term entity rating of “AA+” (Double A plus) and a short
term entity rating of “A-1+” (A-One plus) with a stable outlook by JCR-VIS Credit Rating
Company Limited. The entity rating assigned to HBL is amongst the highest ratings assigned
to private sector banks in Pakistan.

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Initial Public Offering (IPO)
Before going into the deep discussion of IPO of HBL it’s important to mention the occurrence of
Privatization of HBL. HBL was nationalized under the Nationalization Act, 1974 on January 1,
1974. Later in 2000 as part of the privatization strategy, the GoP initiated the privatization of
HBL.

The bidding for the privatisation of Habib Bank Limited (HBL) was held on December 29, 2003
under the supervision of the then Federal Minister for Privatisation & Investment, Dr. Abdul
Hafeez Shaikh. The pre-qualification committee, which included representatives of various
ministries including Finance and the State Bank of Pakistan, had pre-qualified three parties for
the bidding. These parties included Agha Khan Fund for Development, Central Insurance
Company Limited and State of Qatar Supreme Council for Economic Affairs and Investment.

In that privatisation process Aga Khan Fund for Economic Development (AKFED) got the rights
to 51% of the shareholding in HBL, against an investment of PKR 22.409 billion (USD 389
million) for a price of PKR 63.68 per share. Furthermore, SBP holds 48.047 of the total paid up
capital, and the remaining 0.953% is held by National Bank of Pakistan (Trustee Department),
Privatization Commission, Government of Pakistan and SECP.

On February 26, 2004, management control was handed over to AKFED. The Board of Directors
was reconstituted to have four AKFED nominees, including the Chairman and the
President/CEO and three Government of Pakistan nominees. The Bank’s profitability since
privatisation has improved at a Compound Annual Growth Rate of 53% and Advances have
grown at 24% per annum.

In 2007 HBL issued its share for the general public. The purpose of this Offer was to invite the
general public to subscribe to the Bank’s shares for broadening the ownership base, further
strengthening the capital market and passing the benefits of privatization to the common man.

Habib Bank Limited’s Initial Public Offering generated Rs. 8.1 billion and oversubscribed by
2.33 times. At that time its was the largest IPO in the history of Pakistan.

As per the requirement Privatization Commission, Government of Pakistan obtained the approval
of Securities & Exchange Commission of Pakistan (SECP) and circulated Offer for Sale
Document (OFSD). The OFSD was cleared by the Karachi Stock Exchange (Guarantee) Limited
(KSE), Lahore Stock Exchange (Guarantee) Limited (LSE) and Islamabad Stock Exchange
(Guarantee) Limited (ISE).

The Offer for the Sale of Shares of Habib Bank Limited (“HBL”) was held in Karachi on July
23,
2007 and in Lahore on July 24, 2007. The Offer for Sale was conducted by the Privatisation
Commission, Government of Pakistan out of State Bank of Pakistan’s shareholding in HBL.

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The sale was offered to both Resident Pakistani Investors that included Pakistani Investor
includes Pakistani citizen resident in Pakistan; Companies, bodies corporate or other legal
entities incorporated or established in Pakistan and Non Resident Pakistani Investor Including
Pakistani citizen resident outside Pakistan; and Persons holding two nationalities including
Pakistani nationality. For Resident Pakistani Investors total allocation was 80% from the total
offering shares. And the remaining 20% was reserved for the Non-Resident Pakistani Investors.

Global Securities Pakistan Limited was appointed as the Lead Manager for the Transaction.
34,500,000 shares (5% of the Paid-up Capital) of HBL were offered at a price of Rs.235/-
(inclusive of a premium of Rs. 225/- per share. Subscription for number of shares were 100,
200, 300, 400 and 500 shares or in multiples of 500 shares. The minimum amount of
application for subscription of 100 shares was PKR 23,500/- (inclusive of transfer fee) both
in the case of physical transfer and transfer under book entry system. The Subscription list
occurred from July 26 2007 to July 31th 2007 (5 days).

In case of over subscription, the Offeror may exercise the Green shoe option, and offer up to
17,250,000 additional ordinary shares (2.5% of Paid up capital) out of SBP’s shareholding in
the Bank.

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9
Expenses to the Issue
Commission To The Bankers To The Offer

A commission at the rate of 0.25% of the amount collected on allotment in respect of successful
applicants will be paid by the Offeror to the Bankers to the Offer for services to be rendered by
them in connection with this Public Offer.

Brokerage

For the Public Offering, the Offeror will pay brokerage to the members of the Stock Exchanges
at the rate of 1.00% of the value of shares (including premium) actually sold through them.

Expenses Of The Offer For Sale Of Shares

The expenses of this Offer are estimated not to exceed PKR 177,445,500 of which the listing
fees of the Stock Exchanges and application processing fee of SECP shall be borne by the
Bank while expenses to the Offer shall be borne by the Offeror.

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Analysis

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12
Conclusion
After the in-depth analysis of Habib Bank Limited’s financial statements before and after
the IPO we have reached to the following conclusions:

Habib Bank is one the largest bank of Pakistan. It’s the market share of about
20% and had a huge reserve, more than thousands in-country branches and other
international branches. This had positive impact on the investors who wanted to
so investment on HBL’s IPO. Therefore, the IPO was a huge success and merely
one of the largest IPO in the history of Pakistan.


The over subscription proves that investors had great interested in the IPO of HBL.


After the IPO, we can clearly see in the above table, about the change in financial
strength of HBL.

Earnings per share has also improved thus showing the profitability of HBL.

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