Privatization of HBL:

Introduction
Habib Bank Limited was established on August 25, 1941. At the time of incorporation, the Bank had a paid-up capital of PKR 2.5million. Following the creation of Pakistan, the head office of the Bank was shifted to Karachi in 1947. The earlyyears of the Bank were characterized by strong growth profitability, branches, deposits and advances. The Bankentered into the international market in 1951 and opened its first overseas branch in Sri Lanka. Subsequently, theBank 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 Bankplayed its part in economic development and extended credit facilities to a number of sectors at subsidized ratesunder various arrangements including export finance, local manufactured machinery, government borrowing forcommodity operations, mandatory production credit to small farmers and direct industrial investment.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. HBL is Pakistans largest commercial bank in terms of number of branches. It has an extensive network of 1,477 branches in and outside the country. With a deposit base of Rs 451 billion and an asset base of Rs 565 billion, it is second only to the state owned and largest, National Bank of Pakistan. HBLs advances of Rs 329 billion make it the largest lender in the country. Factors Leading to Privatization: 1. Over staffing HBL had a problem of over staffing.in the year 1996, more than 31000 employees worked for HBL. This figure is inclusive of both clerical and non-clerical staff. The over staffing caused shrinking of profits because of the salary and wages payable to the staff that was not needed. 2. Political Pressure The economics policies of Pakistan had a trickle down effect on the policies of the bank and thus the policies of the bank had to be synchronized with the policies of the government. HBL was highly influenced by the policies of the government. Pakistani politics is in unstable arena, and policies are modified with the advent of every new office bearer. Thus there is lack of consistency. This inconsistency,according to the proponents of the privitaziation decisions led to inefficiency . The intent behind the privatization decision was to make HBL an independent organization so that it could function and perform to its maximum potential.

Privatization of HBL: Under the GoP reforms, efforts were initiated in 1996 to prepare the Bank for privatization. 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. 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.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 thedomestic as well as in the international markets. As a result of these initiatives, the Banks core banking systemhas been fully upgraded and as of December 31, 2006 271 branches are online, while over 1,000 branches areexpected to become online by the end of 2007. Initial Public Offering: HBLs IPO was the largest-ever offering in the history of Pakistans capital markets with a transaction value of Rs12.16 billion, which was nearly twice the size of the second largest IPO - that of OGDCL. It was worth Rs6.88 billion offered in November 2003. This transaction potentially benefited 517,500 investors, the largest number ever in such offerings. The offer was made in minimum lots of 100 shares to allow participation by small investors resulting in broad-based shareholding of HBL. ENTITY RATING: The Bank has been assigned a long term entity rating of AA+ (Double A plus) and a short term entity rating of A1+(A-One plus) with a stable outlook by JCR-VIS Credit Rating Company Limited. Lead Manager: Global Securities Pakistan Limited was appointed as the lead manager for the transaction. 34,500,000 shares (5 per cent of the paid-up capital) of the HBL were offered at a price of Rs235 (inclusive of a premium of Rs225 per share) and in case of oversubscription the commission may exercise the Green-shoe option and offer an additional 17,250,000 shares (2.5 per cent of paid-up capital). Stock exchange:
The OFSD has been cleared by the Karachi Stock Exchange (Guarantee) Limited (KSE), Lahore Stock Exchange (Guarantee) Limited (LSE) and Islamabad Stock Exchange (Guarantee) Limited (ISE), collectively referred to as the (Stock Exchanges).Allotment of

shares would be through balloting and preference would be given to those applying for minimum lot of 100 shares.THE SUBSCRIPTION LIST was OPEN FOR FIVE (5) DAYSfrom July 26 to July 31, 2007. Government of Pakistan offloaded its 5 percent holding in Habib Bank Limited (HBL). The government through the Privatisation Commission (PC) has announced its decision to offload its 34.5 million shares of HBL, with a green shoe option of 17.3 million shares exercisable in case of over subscription. At an expected offered price of Rs 235 per share the IPO will raise Rs 12.2 billion.

Summary of Issue:
OBJECTIVE OF OFFER FOR SALE
Main objective of this offer was to invite the general public to subscribe to the Banks shares for broadening the ownership base, further strengthening the capital market and passing the benefits of privatization to the common man.

Initial Public Offering:

INVESTOR ELIGIBILITY
The following categories of investors are eligible to subscribe to the shares offered to the general public: Pakistani Investor includes Pakistani citizen resident in Pakistan; Companies, bodies corporate or other legal entities incorporated or established in Pakistan (to the extent permitted by their constitutive documents andexisting regulations, as the case may be); Provident/pension/gratuity funds/trusts incorporated in Pakistan (subjectto the terms of their respective Trust Deeds and existing regulations). Non Resident Pakistani Investor Includes Pakistani citizen resident outside Pakistan; and Persons holding two nationalities including Pakistani nationality .

Share Capital No. of Shares 1,380,000,000 Pak Rupees Authorized Ordinary shares of PKR 13,800,000,000 10/- each Issued, subscribed and paidup issue for cash Ordinary shares of PKR 6,900,000,000 10/- each 6,900,000,000 The existing issued, subscribed and paidup capital of the bank is held as follows Agha Khan Foundation 3,519,000,000 for Economic Development State Bank of Pakistan 3,315,240,020 Islamic Republic of 64,681,870 Pakistan National Bank of Pakistan 1,059,240 PrivetisationComission 18,860 %Shareholding

690,000,000

351,900,000 331,524,002 6,468,187 105,924 1,886

51.00 48.05 0.94 0.01 -

1 690,000,000

Govt. of Pakistan Securities and Exchange 10 Comission of Pakistan Total 6,900,000,000

100

In case of oversubscription, the Offerer may exercise the Greenshoe Option, and offer upto 17,250,000 (2.5% of Paid up capital) additional ordinary shares out of SBPs shareholding in the Bank.

Conditions for Applications:

The shares would be offered lots of 100 and multiples of 100 up to 500 shares, thereafter multiples of 500 shares. The marketable lot for trading in the Stock Exchanges will be 100 shares, allowing ease of entry and exit to successful applicants of 100 shares. The application size of 100 shares would make the subscription affordable for the common citizens and would allow them an opportunity to become a shareholder of one of the largest banks of Pakistan.

The minimum amount of application for subscription of 100 shares is PKR 23,500/- both in the case of physical transfer and transfer under book entry system.

Basis of Allotment of Shares:

if the shares to be offered to the general public are sufficient for the purpose to accommodate all the applications, then all applications shall be accommodated. In case of over/under subscription of shares by resident and/or non-resident Pakistani investors, the investors of oversubscribed category will be allocated the shares of undersubscribed category. If the Offer is oversubscribed in terms of number of applications (517,500 applications for 100 shares), the shares shall be allotted by conducting computer balloting in the presence of the representatives of the Stock Exchanges in the manner that balloting will be held among all applications irrespective of the number of shares applied for and successful applicants will be allocated 100 shares each. If the Offer is oversubscribed in terms of amount only, then allotment of shares shall be made inthe following manner: All applicants will be allotted 100 shares each. If the balance amount is sufficient to accommodate all applications for 200 shares, then all such applicants will be accommodated first. If all applications for 200 shares cannot be accommodated then balloting will be held among theapplications for 200 shares only, viza viz.

R EFUND OF S UBSCRIPTION M ONEY TO U NSUCCESSFUL A PPLICANTS The Offerer shall take a decision within ten (10) days of the closure of the subscription list as to which applications have been accepted or are successful and refund the money in case of unaccepted or unsuccessful applications within ten (10) days of the date of such decision, as required under the provisions of Section 71 of the Ordinance.

M INIMUM S UBSCRIPTION As this is an Offer for Sale of Shares by the Government of Pakistan, there will be no minimum subscription amount for allotment of shares. The subscription amount received against the Offer will be accepted upto 34,500,000 shares or upto 51,750,000 shares if the Greenshoe option is exercised in full.

DIVIDEND POLICY :
The rights in respect of capital and dividends attached to each ordinary share would be the same. The Bank in ageneral meeting may declare dividends but no dividends shall exceed the amount recommended by the Directors.Dividend, if declared in the general meeting, shall be paid according to the terms of the provisions of theOrdinance. The Directors may from time to time pay to the members such interim dividends as appear to the Directors to bejustified by the profits of the Bank. No dividends shall be paid otherwise than out of the profits of the Bank for theyear or any other undistributed profits. No unpaid dividend shall bear interest or mark-up against the Bank.The Bank has already declared interim dividend of 20% for the financial year ending December 31, 2007. Income distribution will be subject to the deduction of Zakat at source pursuant to the provisions of Zakat and Ushr Ordinance, 1980 (XVIII of 1980). Dividend distribution to the shareholders will be subject to withholding tax at the rate of 10% for all shareholders as per the finance bill, 2007. The tax shall be deducted at source and shall be deemed to be full and final liability in respect of such profits.

CAPITAL VALUE TAX & WITHHOLDING TAX ON SALE/PURCHASE OF SHARES :

Following charges are applicable on sale and purchase of securities: a) 0.02% Capital Value Tax will be charged on purchase of all shares, Modaraba certificates and instruments of redeemable capital as defined in the Ordinance b) 0.01% Withholding Tax will be charged on the sale value of all shares, Modaraba certificates and instruments of redeemable capital as defined in the Ordinance.

DEFERRED TAXATION :
Deferred tax is recognized using the balance sheet liability method on all temporary differences between the amounts attributed to the assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is measured at the tax rates that areexpected to be applied to the temporary differences when they reverse, based on the laws that have been enactedor substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be availableagainst which the asset can be utilized. The Bank booked Net Deferred Tax Asset amount to PKR 2,726 million as of December 31, 2006 and PKR 2,783million as of March 31, 2007.

Premium and Justification of Premium:

This Offer is being made at a price of PKR 235/- per ordinary share of PKR 10/- each, inclusive of a premium of PKR 225/- per share and transfer fee . The premium of PKR 225/- per share on PKR 10/- per share is adequately justified, based on the following considerations: a) HBL has the largest branch network and highest advances amongst the banks in Pakistan. HBL also ranks second largest in terms of asset and deposit base. b) HBL underwent capital restructuring in 2004. The Bank issued right shares amounting to PKR 8,000 million and subsequently reduced accumulated losses up to PKR 13,278,495 million

against its paid up capital of PKR 20,178,495 million. The Bank also reduced its authorized share capital from PKR 30,000 million to PKR 13,800 million. c) HBL is the only Pakistan based bank with significant international operations. The Bank has 39 branches, 2 subsidiaries, 2 Affiliates and 2 representative offices in 23 countries outside Pakistan. d) In February 2004, the GoP made a strategic sale of 51% of the shareholding in the Bank at a price of PKR 63.68 per share (price has been adjusted for restructured capital base) and handed the management to the successful bidder AKFED. Since then, the Bank has shown exceptional progress as evident from its increasing deposit base, growth in advances and improving net profits. e) Advances have increased at a CAGR of 23.37% from PKR 178,917 mn in FY 03 to PKR335,958mn in FY 06. f) Deposit base increased at a CAGR of 8.38% from PKR 345,436 mn in FY 03 to PKR 439,724 mn in FY 06. g) Total equity has grown at a CAGR of 31.26% from PKR 23,485 mn in FY 03 to PKR 53,112 mn in FY 06. h) Despite increasing competition, profits increased at a CAGR of 52.66% from PKR 4,013 mn in FY 03 to PKR 14,276 mn in FY 06.

UNDERWRITING :
Underwriting is required for public offerings where a premium is being charged.This Offer has not been underwritten.

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 bepaid by the Offerer 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 Offerer will pay brokerage to the members of the Stock Exchanges at the rate of1.00% of the value of shares (including premium) actually sold through them.

Oversubscribtion:
The Initial Public Offering (IPO) of shares in Habib Bank Limited (HBL) has been oversubscribed by Rs6.40 billion or 52 per cent with the bank receiving Rs18.60 billion against the public offer of Rs12.20 billion. Analysts hold a consensus view that the public response to the stock has been overwhelming. Given the huge number of applications received, each applicant, who wins at the ballot to follow, would be entitled to no more than 100 shares. The government had made an IPO of 7.5 per cent shares (including green shoe option of 2.5 per cent) out of its holding of 49 per cent in the bank. The total 51.75 million shares were offered at Rs235 per share. The IPO has been billed as the largest-ever offering in Pakistan in regard to both value and number of shares offered.

The offer for sale of shares of Habib Bank Limited at the Karachi Stock Exchange has been 1.7 times oversubscribed, as it attracted over 428,000 applications worth Rs 18.638 billion, much higher than the government's target of Rs 12.14 billion. The offer attracted over 387,000 applications for 100 shares, 21,000 applications for 200 shares, 3,600 applications for 300 shares, 1,824 applications for 400 shares, 14,200 applications for 500 shares, and 1,193 applications for over 500 shares. The government is selling 34.5 million shares at Rs 235 per share. It would fetch Rs 8.107 billion. If the government exercises its green shoe option, it would sell another 17.2 million shares. As a result the government will be selling 51.7 million shares and fetching Rs 12.149 billion. The IPO took place from July 26 to July 31. Allotment of shares would be done through balloting.
B ANKERS TO THE ISSUE:
Domestic Bankers

1. Habib Bank Limited 2. MCB Bank Limited 3. United Bank Limited 4. Allied Bank Limited 5. Bank Alfalah Limited 6. Habib Metropolitan Bank Limited 7. Bank AL Habib Limited 8. Soneri Bank Limited 9. Standard Chartered Bank Pakistan Limited 10. NIB Bank Limited 11. PICIC Commercial Bank Limited 12. Bank of Punjab 13. Bank of Khyber 14. KASB Bank Limited 15. JS Bank Limited 16. ABN AMRO Bank 17. Askari Bank Limited 18. Faysal Bank Limited 19. Saudi Pak Commercial Bank Limited 20. Deutsche Bank AG
Overseas Bankers

1. Habib Bank Limited, Bahrain 2. Habib Bank Limited, Oman 3. Habib Bank Limited, UAE 4. United Bank Limited, Bahrain 5. United Bank Limited, UAE

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 Offerer.

Expense category Rate Amount PKR Comission to the Bankers 0.25% 30,403,125 to the Offer* Brokerage to the 1.00% 121,612,500 Members of the Stock exchange* Securities and exchange 100,000 Comission of Pakistan Processing fee Listing Fees and Charges 1,685,000 of the Stock exchanges Pinting and Publication of 4,344,875 OFSD, Printing of shares Certificates, Transfer Deeds and share Application Forms* Fee for Computer 3,300,000 Balloting* Advertising, marketing 15,000,000 and roads Shows Other Miscellaneous 1,000,000 expenses Total 177,445,500 *Represents maximum possible expenses relating to the subscription amount inclusive of green shoe option.

Analysis
Pre-IPO and Post-IPO Analysis: Year Period Ratios Earning Per Share 2011 12M Unit of Measurem ent Rs. 18.82 2010 12M 2009 12M 2008 12M 2007 12M 2006 12M

15.58

13.50

13.18

14.62

17.46

Priceearning Ratio Dividen d Yeild Dividen d in Price Dividen d Payout Share Price

Times % Rs. % Rs.

6.25 0.06 7.00 0.37 131.0

7.27 0.06 6.50 0.42 137.4

7.04 0.06 6.00 0.44 140.7

15.23 0.03 5.50 0.42 324.9

18.53 0.01 4.00 0.27 324.9

0.54 N/A 0.00 0.00 0.00

Critical Analysis: OGDC Unit of 2011 Measurement Rs. 14.77 Times % Rs. % Rs. 10.30 0.04 5.50 0.37 185.00 HBL 2011 18.82 6.25 0.06 7.00 0.37 131

Ratio Earning per Share PriceEarning Ratio Dividend Yeild Dividend Dividend Payout Share Price

2010 13.76 9.08 0.04 5.50 0.40 147.00

2010 15.58 7.27 0.06 6.50 0.42 137

Current Situation: Last Trade 103.15 ( 2.12) Trade Time May 22, 2013 Previous's Close 101.03( 0.53) Avg Volume (3M) 129,020 P/E 5.48 EPS 18.82 Highest324.95 (on Mar 07, 2008)

Day's Range 101.40-104.50 Volume 444,900 Previous's Range 100.95 102.00 3M Range 87.96 - 116.89 1Y Range 87.96 - 122.50 Dividend7.00 Lowest49.25 (on Jan 27, 2009)

RECOMMENDATIONS: 1- If HBL had offered its shares at more than 235 rs. than the equity would have been much stronger. 2- SECP hasnt evaluated the financial soundness of HBL so the share holders (investors) have to perform this exercise this by them self. 3- The green shoe option must be taken into account and more favorable results well be seen. 4- HBL should move into the international stock exchange to enhance their situation and increase their good will. Conclusion:The overall data shows that the privatization of HBL was a fruitful one for the government, stock exchange and for the state as well. It helped in solving the problems of the bank. The financial position of the bank got better as the company was sent into the IPO. The financial stats show that the growth trend of HBL was in upward direction. The Bank has been assigned a long term entity rating of AA+ it shows that the performance of HBL improved immensely. The pre & post IPO analysis also shows that the bank grew. Even on the analysis with OGDC it shows that HBL is earning more per share. After that if we see that justification of the premium we come to know about many plus points of HBL. Those all point shows that how extraordinary performance is showed by HBL, which is one of the leading commercial bank in Pakistan. One of the findings from the whole data analysis, one can say that privatization can lead towards prosperity. There are clear facts and figures stated which support this conclusion.