NIB minority shareholders to incur Rs700mln loss on stake sale

KARACHI: Minority shareholders of NIB Bank are feared to sustain a loss of around Rs700 million after the proposed merger of the bank into MCB Bank at a skewed swap ratio of one for 140 shares, analysts said.   

Early in December last year, the board of directors of NIB Bank, which owned 88 percent by Singaporean Temasek Holdings Pte Ltd, allowed merger of the bank into MCB Bank.

Under the arrangement, MCB’s shareholder would be able to get 140.043 shares of NIB for one share. 

Singaporean state investment arm Temasek, facing massive losses to its investment in NIB Bank over the years, was trying to exit from Pakistan through divesting its majority stake. It initiated divestment process in 2011. NIB sustained a net loss of around Rs17 billion since Temasek acquired the bank back in 2005.

Five years back, the agency was expecting a paper loss of around $400 million of its $540 million investment. In 2005, Temasek bought 25 percent (15 million shares) of a local NDLC-IFIC Bank. At that time, the NIB’s market cap amounted to $48.9 million.

In 2008, Temasek invested another Rs12 billion in NIB via a rights issue in 2008, bringing its stake up to the current level, while increasing the NIB’s paid-up capital to more than Rs40 billion, the highest of all local banks.

Analysts said alone State Life Insurance Corporation and Pakistan Reinsurance, which together own 228 million shares of NIB Bank, would sustain a loss of Rs215 million on book and Rs139 million on market value on completion of ‘undervalued sale of NIB Bank’s stakes.’

“Ironically, a NIB shareholder could sale its shares at Rs2.21/share in the market and buy MCB’s shares if he wants,” said an analyst.

“The merger, however, would entail Rs1.58/share value for NIB shares, almost 30 percent undervaluation.”

Analysts said it makes little sense why “majority shareholders of NIB Bank would agree to such an arrangement.” 

“After all, they get little in return of their investment,” another analyst said.  For NIB Bank – Pakistan’s 12th largest bank by market capitalisation, the possible merger could, however, be a great chance to get out of losses.  

The bank was struggling to be profitable, and it posted profit after tax of Rs2.617 billion in 2015 as against loss after tax of Rs508 million in 2014.