Mergers and acquisitions

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Mergers and Acquisitions in Pakistan

A brief account on the activity of mergers and acquisitions taken place in Pakistan, their procedures and benefits.

Dated: 1st February, 2013

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MERGERS & ACQUISITIONS LAWS IN PAKISTAN:

While there is currently no Pakistani corporate empire that spans the globe, and

certainly no Pakistani equivalent of Tata Sons, many Pakistani companies appear to be

growing in size and are reaching the stage where they may begin to consider global

expansion, for which the mergers and acquisitions are an important step in the way.

Mergers and acquisitions in Pakistan; like any other economy, are driven by the motives

such as economy of scales, efficient corporate control, taxation shields and benefits of

synergy. The corporate environment of Pakistan has seen a number of mergers and

acquisitions, amalgamations and formation of conglomerates. Several forms of mergers

have been in practice in Pakistan. The merger activity can be proceeded by:

By an order of the Central Government;

By purchase of assets;

By purchase of shares;

By Merger through a holding company;

By acquisitions of shares;

By way of a scheme in voluntary winding up;

By exchange of shares.

Merger in the terms of corporate law is defined as:

“The absorption of one company by another, latter retaining its own

name and identity and acquiring assets, liabilities, franchises, and

powers of former, and absorbed company ceasing to exist as separate

business entity. It differs from a consolidation wherein all the

corporations terminate their existence and become parties to a new one”

Where acquisition is defined as:

“a transaction or series of transactions whereby a person (individual,

group of individuals or company) acquires control over the assets of a

company, either directly by becoming the owner of those assets or

indirectly by obtaining control of the management of the company.

Where shares are closely held (held by a small number of persons), an

acquisition will generally be effected by agreement with the holders of

the whole of the share capital of the company being acquired. Where the

shares are held by the public generally, the acquisition may be effected

(a) by agreement between the acquirer and the controllers of the

acquired company; (b) by purchases of shares on the stock exchange; (c)

or by means of an acquisition bid.”

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Procedure according to companies’ ordinance:

Merger of Companies

Under the 1984 Ordinance, the Court plays a vital role in sanctioning mergers.

According to Section 284 read with Section 287 of the 1984 Ordinance, the scheme of

the proposed compromise or arrangement of a company (which can include a scheme of

merger) must receive the sanction of the Court.

Section 284 of the Companies Ordinance 1984 describes that a company could be

merged / amalgamated into another company if:

Three fourths of the creditors or members sanctioned the same. An application

for sanction for merger shall be given to the Court. The Court directs the

Company to convene a meeting of creditors or class of creditors or of the member

of the Company or class of members in such manner as the Court directs.

No Court sanctions a merger unless the Court is satisfied that all material facts

relating to the Company such as the latest financial position of the Company, the

latest auditor‟s report on the accounts of the company, the pendency of any

investigation proceedings in relation to the Company and the like.

Merger / Amalgamation of Non-Banking Finance Companies

Section 282-L of the Companies Ordinance, 1984 prescribes the procedure for

amalgamation of Non Banking Finance Companies For the amalgamation of Non-

Banking Finance Companies („NBFCs‟), approval of the SECP is required under Section

282(L) of the 1984 Ordinance.

A scheme containing the terms of the merger / amalgamation has been placed in

draft before the share holders of each of the NBFC concerned separately;

The scheme shall be approved by a resolution passed by a majority in number

representing two thirds in value of shareholders of each of the said NBFCs,

present either in person or by proxy at a meeting called for the purpose;

Notice of every such meeting as is referred above shall be given to every

shareholder of each of the NBFC concerned in accordance with the relevant

articles of association, indicating the time, place and object of the meeting, and

shall also be published at least once a week for three consecutive weeks in not less

than two newspapers which circulate in the locality or localities where the

registered offices of the NBFCs concerned are situated, one of such newspapers

being in a language commonly understood in the locality or localities.

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Any shareholder, who has voted against the scheme, of amalgamation at the

meeting or has given notice in writing at or prior to the meeting to the NBFC

concerned or the presiding officer of the meeting that he dissents from the

scheme of the amalgamation, shall be entitled, in the event of the scheme being

sanctioned by the Commission to claim from the NBFC concerned, in respect of

the shares held by him in that NBFC, their value as determined by the

Commission when sanctioning the scheme and such determination by the

Commission as to the value of the shares to be paid to dissenting shareholder

shall be final for all purposes.

If the scheme of amalgamation is approved by the requisite majority of

shareholders in accordance with the provisions of this section, it shall be

submitted to the Commission for sanction and shall, if sanctioned by the

Commission by an order in writing passed in this behalf be binding on the

NBFC‟s concerned and also on all the shareholders thereof.

Merger / Amalgamation of Banking and Finance Companies:

The procedure for the amalgamation of banking companies has been stipulated in

Section 48 of the Banking Companies Ordinance, 1962 („the 1962 Ordinance‟) and

approval of the State Bank of Pakistan („SBP‟) is required for their amalgamation. The

procedure for obtaining approval for the amalgamation of a NBFC or a banking

company (under Section 48 of the 1962 Ordinance) is similar as explained above.

Provided a scheme containing the terms of such amalgamation has been placed in draft

before the shareholders of each of the NBFCs concerned, or in the case of banking

companies, each of the banking companies, and it is approved by a resolution passed by

a majority representing two-thirds in value of the shareholders of each of the said

NBFCs or the banking companies (as the case may be). If the amalgamation is approved

by the requisite majority of shareholders, it shall be submitted to the SECP or the SBP

(in case of banking companies) for sanction and shall, if sanctioned by the SECP or the

SBP by an order in writing passed in this behalf, be binding on the NBFCs or the

banking companies concerned and also on all the shareholders of the respective

companies.

REGULATORY BODIES IN PAKISTAN:

The mergers and acquisitions are monopolistic in nature and may result in the

monopoly of certain conglomerates in an economy, resulting in the elimination of an

important constituent of a capitalistic economy, i.e competition, making it difficult for

the new ventures to survive in the economy and creating barriers for new entrants and

nascent companies. To combat with these dangers, regulatory bodies are necessary for

every economy.

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Monopolies and Restrictive Trade Practices (Control and Prevention)

Ordinance’ (MRTPO) 1970:

Pakistan had an anti-monopoly law namely „Monopolies and Restrictive Trade Practices

(Control and Prevention) Ordinance‟ (MRTPO) 1970. The Monopoly Control Authority

(MCA) was the organization to administer this Law. In the fast changing global and

national economic environment, the MRTPO, 1970 was inadequate to address

competition issues effectively. This was because:

i) The 1970‟s law was out of date for a modernizing and rapidly transforming market

economy;

ii) Due to several limitations in the law, the MCA was not able to meet the expectations

of businesses and the consumers at large;

iii) The first generation reforms that liberalized the economy and encouraged the private

sector required a competition policy framework that could promote and protect

competition and innovation.

The Government of Pakistan thus launched a programme to develop Competition Policy

as a key “second generation reform” initiative. Towards this end, the Ministry of Finance

and the MCA worked with the World Bank and the Department for International

Development (DFID), UK. As a result of these efforts, Competition Ordinance, 2007

replaced the MRTPO. After getting approve, Competition Ordinance 2007 finally

transformed into Competition Act 2010.

Competition Act 2010

The Competition Act, 2010 considers the current economic realities as well as corrects

the deficiencies of the MRTPO related to definitional aspects, coverage, penalties, and

other procedural matters. The act entails the formation of the competition commission

and its statutory provisions. Under section 43 of the act, an appellate tribunal is also

present to answer the predicaments of the parties denied the permission of the proposed

merger or acquisition. The commission sanctions the proposed mergers following an

inquiry about the aspiring companies.

The Competition Commission of Pakistan (CCP):

The Competition Commission of Pakistan (CCP) is an independent quasi-regulatory,

quasi-judicial body that helps ensure healthy competition between companies for the

benefit of the economy. The Commission prohibits abuse of a dominant position in the

market, certain types of anti-competitive agreements, and deceptive market practices. It

also reviews mergers of undertakings that could result in a significant lessening of

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competition. Combined with its advocacy efforts, the Commission seeks to promote

voluntary compliance and develop a „competition culture‟ in the economy.

Under the 2010 Act, clearance of a merger is required from the CCP if the transaction

meets the criteria prescribed in the 2010 Act and the 2007 Regulations. The term

„merger‟ has been defined by the 2010 Act to mean the merger, acquisition,

amalgamation, combination or joining of two or more undertakings or part thereof into

an existing undertaking or to form a new undertaking (Section 2(1)(h) of the 2010 Act).

Section 11(1) of the 2010 Act stipulates that no undertaking shall enter into a merger

which substantially lessens competition by creating or strengthening a dominant

position in the relevant market. According to Section 11(2) of the 2010 Act, inter alia,

where an undertaking intends to acquire the shares or assets of another undertaking, or

two or more undertakings intend to merge the whole or part of their business, and they

meet the pre-merger notification thresholds (provided in Regulation 4 of the 2007

Regulations), such undertaking or undertakings shall apply to the CCP for clearance of

the intended merger and, according to Section 11(3), shall submit the pre-merger

application („the application‟) as soon as an agreement in principle is reached or a

nonbinding letter of intent is signed by the parties. The CCP reviews the application in

two phases. In Phase I the CCP, inter alia, determines whether:

1. the intended merger falls within the definition of a merger (as defined by the

2010 Act) (Regulation 10(1) of the 2007 Regulations);

2. meets the pre-merger thresholds, as defined by Regulation 4 of the 2007

Regulations;

3. Is likely to substantially prevent or lessen competition (Regulation 6(1) of the

2007 Regulations).

If the intended merger does not give rise to any competition concerns, the CCP will

allow the concerned parties to proceed with the same (the CCP may set forth the

conditions to which the intended merger is subject to). If the intended merger gives rise

to competition concerns, the CCP will initiate Phase II of its review to determine

whether the merger substantially lessens competition by creating or strengthening a

dominant position in the relevant market (Section 11(8) of the 2010 Act). Failure to

obtain clearance of a merger from the CCP may render the concerned undertaking liable

for the imposition of a penalty under Section 38 of the 2010 Act or the CCP may pass

one or more orders under Section 31 of the 2010 Act which, inter alia, empowers the

CCP to undo or prohibit a merger.

CURRENT SCENARIO OF MERGERS AND ACQUISITIONS IN PAKISTAN:

Pakistani economy has been an even terrain for acquisitions as compared to the

mergers, even with a solid framework of ruling and regulating legislations, most of the

acquisitions span banking/financial sector, cement industry and subsidiary acquisitions.

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The list of the mergers in Pakistan is exhaustive however, we shall only be including the

mergers, acquisitions, delisting and restructuring that has taken place in the last 5 years.

MERGERS IN BANKING SECTOR:

One reason for the recent surge in bank mergers is Basel Accord II which has been

implemented from January 2008. Pakistan is signatory to the accord. To ensure that the

banks, at all times, remain financially sound, the accord links the capital that a bank is

required to hold with its risk weighted assets (RWA). The accord requires that the

capital of a bank should be 8 percent of the bank‟s risk weighted assets. Given the spirit

of the accord the State Bank of Pakistan (SBP) had asked commercial banks to raise

their capital gradually to the level of RS. 6.0 billion, till end of year 2009. Some of the

banks whose capital was less than the required level and who felt that raising capital

through equity injection, or reinvestment of profits will be difficult, started opting for

mergers to bring their capital to the requisite level. The most popular mergers in that

regard being, that of PICIC and NIB bank. Besides the approaches prescribed by the

Basel accord for risk-weighting the assets also has something to do with expected

further consolidation of the banking industry. Following table taken from KSE, enlists

the mergers that have taken place in Pakistan from 2006 to 2012.

Name of Company

New name of the company / merged

with Date of Merger Paidup Capital Ratio

2012

Azam Textile Mills Limited

Saritow Spinning Mills Limited 2012-02-21 132.750 [1.2 : 1 ]

2011

MyBank Limited Summit Bank Limited 2011-07-06 5303.582 [ 1 : 0.8 ]

Atlas Bank Limited

Summit Bank Limited 2011-01-11 5001.466 [ 1 : 0.5 ]

The Royal Bank of Scotland Limited

Faysal Bank Limited 2011-01-03 17179.814 [ 6 : 1 ]

2010

Shaheen Cotton Mills Limited

Shahzad Textile Mills Limited 2010-08-02 147.294 [ 1 : 0.3 ]

Askari Leasing Limited

Askari Bank Limited 2010-03-10 517.402 [ 1 : 83.1 ]

Al-Zamin Leasing Corporation Limited

Invest Capital Investment Bank Limited 2010-01-11 496.071 [ 1 : 2.4 ]

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Al-Zamin Leasing Modaraba

Invest Capital Investment Bank Limited 2010-01-11 308.721 [ 1 : 2.6 ]

2009

Orix Investment Bank Limited

Orix Leasing Pakistan Limited 2009-10-28 1089.000 [ 43:1 ]

Automotive Battery Company Limited

Exide Pakistan Limited 2009-05-04 52.648 [ 9 : 1 ]

Network Leasing Corporation Limited KASB Bank Limited 2009-02-17 175.000 [ 500 : 1 ]

International Multi Leasing

Al-Zamin Leasing Modaraba 2009-01-19 54.000 [ 1 : 1 ]

2008

Pakistan Slag Cement Industries Limited

Zeal Pak Cement Factory Limited 2008-11-06 64.000 [ 5 : 1 ]

Universal Leasing Corporation Limited

Al-Zamin Leasing Corporation Limited 2008-06-06 210 [ 2.44 : 1 ]

PICIC Commercial Bank Limited NIB Bank Limited 2008-01-01 2734.875 [ 1 : 2.27 ]

Pakistan Industrial Credit & Investment Corp.Ltd (PICIC) NIB Bank Limited 2008-01-01 4152.72 [ 1 : 2.27 ]

2007

International Housing Finance Ltd. KASB Bank Limited 2007-11-22 450 [ 1 : 1.30 ]

Suzuki Motorcycles Pakistan Ltd.

Pak Suzuki Motor Company Ltd. 2007-10-29 438.989 [ 21 : 1 ]

Dewan Hattar Cement Limited

Dewan Cement Limited 2007-10-22 2565 [ 1 : 0.75 ]

Crescent Standard Investment Bank Ltd.

Innovative Housing Finance Limited 2007-07-20 1257.61 [ 0.005 : 1 ]

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Guardian Modaraba

B. R. R. International Modaraba 2007-05-25 244.695 [ 1 : 1.22 ]

2006

Jahangir Siddiqui Inv. Bank Ltd. JS Bank Limited 2006-12-30 853.125 [ 1 : 3.24 ]

Modaraba A1- Tijarah

Modaraba A1- Mali 2006-11-07 75.778

Certificate [ 91 : 2 ]

Second Tri Star Modaraba

First Tri Star Modaraba 2006-10-04 128.7 [ 1.817 : 1 ]

WORLDCALL Multimedia Ltd.

WORLDCALL Telecom Ltd. 2006-09-06 530 [ 1 : 1.27 ]

WORLDCALL Broadband Ltd.

WORLDCALL Telecom Ltd. 2006-09-06 1500 [ 1 : 1.09 ]

WORLDCALL Communication Ltd.

WORLDCALL Telecom Ltd. 2006-09-06 1831.702 [ 1 : 1.42 ]

Union Bank Limited

Standard Chartered Bank Ltd. 2006-08-29 3387.505 [ 1 : 2.50 ]

Colony Textile Mills Limited

Colony Mills Limited 2006-08-28 250 [ 1 : 9.50 ]

First Allied Bank Modaraba

Allied Bank Limited 2006-08-25 350 [ 1 : 024 ]

Atlas Investment Bank Limited Atlas Bank Limited 2006-07-26 506.024 [ 1 : 3.14 ]

ABAMCO Growth Fund UTP Growth Fund 2006-06-06 275.625 [ 1.845001 : 1 ]

ABAMCO Stock Market Fund UTP Growth Fund 2006-06-06 875 [ 0.970229 : 1 ]

ABAMCO Capital Fund UTP Growth Fund 2006-06-06 2029.42 [ 0.898072 : 1 ]

ACQUISITIONS:

The list of acquisitions, as published by competition commission of Pakistan reports 261

acquisitions, (including subsidiary and associate acquisitions) since 2007. The biggest

wave of acquisitions was witnessed in 2008, the beneficiaries of which, were the

conglomerates and financial institutions. (competition commission of pakistan).

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Companies/shares acquired by different conglomerates:

Nishat Group:

Mian Muhammad Mansha Yaha is the captain of this splendid ship having around 30

companies on board. Mansha, who owns the Muslim Commercial Bank as well, is now

setting up a billion rupee ($ 17 m) paper sack project too. Nishat Group comprises of

textiles, cement, leasing, insurance and management companies. Following is a brief

account of acquisitions made by nishat group

Brief of Transaction Date of NOC

Acquisition of 4.55 million shares of M/s. MCB Bank Limited by Nishat Mills Limited. 16-06-2009

Acquisition of 100% stake and management control in AES Pak Gen (Pvt) Company by a consortium comprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security General Insurance Company Limited, Mr. Hassan Mansha, Stanhope Investments and Eengen (Pvt) Limited.

31-12-2009

Acquisition of 90% stake and management control in AES Lal Pir (Pvt) Limited by a consortium comprising of Nishat Mills Limited, Adamjee Insurance Company Limited, Security General Insurance Company Limited, Mr. Hassan Mansha, Stanhope Investments and Eengen (Pvt) Limited.

31-12-2009

Merger of MCB Asset Management Company Limited and Arif Habib Investments Limited.

11/2/2011

Shirazi group:

Is another conglomerate that has been active in acquisitions. Atlas group is its

subsidiary, which has diversified a great deal over the last 10 years,

Brief of Transaction Date of NOC

Acquisition of shares of Shirazi Group Companies by M/s. Shirazi Capital (Pvt) Limited. 28-03-2008

Acquisition of 24.90% shares of Atlas Bank Limited by Shirazi Capital (Pvt) Limited.

21-01-2010

Acquisition of 2,916,900 (12%) shares of Total Atlas Lubricants Pakistan (Pvt) Limited by Total Holding Asie, S.A from Shirazi Investments (Pvt) Limited.

28-01-2011

Acquisition of 549,600 (5.46%) shares of M/s. Atlas Battery Limited by M/s. Shirazi Capital (Private) Limited.

13-10-2011

Acquisition of 4,370,675 shares (9.87% shareholding) of Atlas Insurance Limited by Shirazi (Pvt) Limited.

24-07-2012

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INFLUENCE OF HOLDING COMPANIES:

A large number of local and foreign holding companies are also operating in Pakistan,

who buy the outstanding shares of various companies. Holding companies allow the

reduction of risk for the owners and can allow the ownership and control of a number of

different companies, still the same acquisition laws apply to the holding acquisitions,

and therefore they are worth mentioning. Following is the compilation of acquisitions

carried out by holding companies in Pakistan.

Brief of Transaction Date of NOC

Acquisition of 18.32% shares of M/s. United Bank Limited jointly by Bestway (Holdings) Limited and Mr. Zameer Mohammad Choudrey on conversion of 14.09 million Global Depository Receipts of United Bank Limited.

7/5/2009

Aquisition of 24.95% shares of Pioneer Cement Limited by Vision Holdings Middle East Limited.

8/6/2009

Acquisition of IMS Health Incorporated, USA by Healthcare Technology Holdings, Inc. USA.

14-01-2010

Acquisition of 21,636,783 shares of UBL Insurers Limited by M/s. Bestway (Holdings) Limited.

15-11-2010

Acquisition of 20.003% of the issued share capital of United Bank Limited by Bestway (Holdings) Limited, UK.

17-01-2011

Acquisition of 21,436,823 shares of M/s. Macter International (Private) Limited by M/s. Pharmalux Holdings Limited.

23-02-2011

Acquisition of M/s. GFive Holdings Corporation by M/s. Patsytems (NA) LCC. 3/8/2011

Acquisition of 17,647,059 (22.06%) shares of M/s. Daewoo Pakistan Express Bus Service Limited by M/s. Greentown Holdings Korea Inc.

25-08-2011

Acquisition of 47,058,824 (58.82%) shares of M/s. Daewoo Pakistan Express Bus Service Limited by M/s. Pakistan G.T. Holdings Company (Private) Limited.

3/10/2011

Acquisition of 1,806,759 shares (20 to 25% of the total shareholding) of ACR Capital Holdings PTE Limited by Marvel Project Holding BV.

25-04-2012

Acquisition of 57,773,885 shares representing 25.43% shares of Pioneer Cement Limited by Vision Holdings Middle East Limited.

3/7/2012

Indirect acquisition by IMDB Energy SDN BHD, Malaysia of 23.2% shareholding in Fauji Kabirwala Power Company Limited through the acquisition of the entire issued and paid up share capital of Tanjong Energy Holdings Sdn Bhd, Malaysia.

7/9/2012

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Benefits of mergers in Pakistan:

M&A result in following tax benefits:

• The Income Tax Ordinance, 2001 allows amalgamating companies to set off their

business losses against the profits of the other company, provided that the

amalgamating companies continue their operations for at least five years from the

date of amalgamation. Any unabsorbed depreciation of the amalgamating

companies is also treated as an allowable expense of the merged entity

• Similarly, group companies have the option to be taxed as one unit. The group

companies can also surrender their assessed losses for the year (except the capital

loss), which may be claimed by a company in the group for set off against its income

in the tax year and the next two tax years

• The finance bill 2008 has also proposed to allow banking companies, nonbanking

financial companies, modarabas and insurance companies to adjust accumulated

losses against the income of the group during a tax year. Any un-used loss will also

be allowed to be carried forward for six tax years following the tax year in which the

loss arises

• Transfer pricing means the pricing of transactions between two or more related

parties or between two or more segments of a company. In Pakistan, income tax

authorities can apportion / allocate income and expenses relating to transactions

between group companies in such a manner which truly reflects the essence of the

transaction.

Besides the tax saving benefits, the merged companies and the acquirers are looking

towards the regulatory benefits and capturing the market share eg. The merger of

RBS and faysal bank, and that of atlas bank and summit bank,

The divestitures of government held companies attract the interest of foreign

companies who are interested in buying the assets of the public sector companies.

LIQUIDATION, DIVESTITURES AND PRIVATIZATION IN PAKISTAN:

A large number of public sector units have already been divested and a number of other

public enterprises including telecommunications and thermal power stations have been

placed on the privatization list. partial divestiture of the Telecommunications

Corporation of Pakistan (TCP). At present, as many as 46 industrial units, including all

the remaining manufacturing units with the exception of Pakistan Steel, have been

placed on the privatization list. Furthermore, two banks and six non-bank financial

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institutions; four units in the oil and gas sector; Karachi Electric Supply Corporation; six

thermal power units and three area electricity boards of WAPDA; Pakistan

Telecommunications; Pakistan Shipping Corporation and National Tanker Corporation;

and Pakistan Railways are also on the privatization list.

During 1991-92, 69 manufacturing units and two commercial banks were successfully

privatized. So far 91 industrial units, majority shares of two major banks and three non-

bank financial institutions (NBFIs), 10 per cent shares of Pakistan International

Airlines, 12 per cent shares of Pakistan Telecommunication and 26 per cent of Kot Addu

power station have been divested. All in all 106 units have been divested, and so far

government has received Rs. 59.6 billion through the sale of these enterprises. Total

employment in the manufacturing units, which were privatized by sale of assets and

where the management was transferred, was around 35,000, out of which 63.3 per cent

opted for golden handshake scheme. If the retrenched workers are also taken into

consideration, employment in privatized units may have gone down by at least three-

fifth.

Modes of public sector divestitures in Pakistan

Public enterprises may be liquidated or divested partially or completely, and the

divestiture may take different forms including flotation of shares in the stock exchange

market, sales through financial institutions and equity tap and outright auction.

• Sale of Assets: The divestiture of public enterprises may be pursued through

following four methods.

(a) Flotation of Shares: The shares of public enterprises are floated in the Stock

Exchange Market, and government progressively reduces its share holding in such

enterprises. Such flotation has three distinct features. First, induction of private capital

may result in higher levels of productivity. Second, government retains sufficient control

if the firm is of strategic importance. Third, gradual divestiture would not have an

adverse impact on the prices of the shares. A limited number of shares of Pakistan

International Airlines (PIA) and Pakistan Telecommunications have been offered for

sale. PIA divested 10 per cent of the shares through the stock exchange, and Pakistan

Telecommunications divested 12 per cent of its shares

(b) Auction: Auction may be done through sealed bidding or open bidding. Similarly,

bidding may be done for a part of the shares or for the entire company.

• Privatization: By-passing the Sale of Divestiture: (private sector to be involved

in operations) Leasing, franchising, liquidation and other possible modes of

privatization have been used only sparingly. A couple of railway sectors were offered to

the private sector for operation but with not much success. Similarly there was a

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proposal to let private sector run the goods trains against the payment of track charges,

but the experience has not been very successful. An exercise for unbundling of both

WAPDA and railways was carried out but so far not much has resulted from such

exercise.

Divestiture in Banking sector:

Pakistan has already divested two relatively smaller banks and is in the process to divest

two major banks. A large number of Pakistani and foreign banks are operating

simultaneously in Pakistan, and they compete vigorously with each other. It is therefore

expected that performance of the privatized banks would be better.

Two privatized banks are Allied Bank Ltd. (ABL) and Muslim Commercial Bank (MCB).

Former was taken over by a management group and a private investor (mian mansha)

has acquired the latter. The performance of the Muslim Commercial bank in the post

privatization period has been somewhat better than that of the Allied Bank. Paid-up

capital of ABL increased from Rs 272 million in 1991 to Rs 1063 million by 1997 and of

MCB from Rs 576 million in 1991 to Rs 1820 million in 1997. Similarly deposits of ABL

increased from Rs 25 billion to Rs 63 billion and of MCB from Rs 350 billion to Rs 1024

billion over the same period.

Divestiture in Power and telecommunications sector

Only 26 per cent shares of one thermal unit have been divested and the management

has been transferred to the private sector. There may have been an improvement in

productivity but the increase in profits has been due to higher prices, which were also

guaranteed.

On 12 April 2006, the government of Pakistan, which owned 88 per cent of PTCL, sold

off a 26 per cent stake to Etisalat International Pakistan LLC, a subsidiary of Etisalat, for

USD 2.59 billion. It took almost a decade from the government's initial announcement

to divest its shares in the company. On 10 September 2007, Etisalat announced plans to

acquire an additional stake in PTCL increasing its existing stake to 51 per cent. The

divestiture resulted in laying off of thousands of employees. But still, the Privatization of

PTCL, stands as one of the success stories of the smooth transfer of charge and helping

public units to turn into effective market players. It is true that the privatization of PTCL

has been effectively carried out but the privatization of railways has been completely

ruled out given the inherent difficulties in the system. However, the government shows

its unflinching resolve to continue with its determination to privatize other national

assets. The Privatization Commission is subjecting various nationalized entities to a

careful study for this purpose.

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CONCLUSION:

Following the merger wave from 2006 to 2008, the Pakistani banking industry

transformed from a government dominated sector to a highly competitive and profitable

industry. Becoming the largest taxpaying sector, however it is a crude reality that

mergers in Pakistan either result from regulatory rulings or to create monopoly in a

sector. E.g the energy and cement sector where smaller cement companies can scarcely

avoid being swallowed up by the big fish. That eventually would empower the bigger

ones, Lucky, D.G., Maple Leaf and a few others to set the direction for the industry.

The mergers in telecom industry have proven very successful and have helped shaping

the industry as among the largest telecom industries in the world. What needs attention

is the formation of strong conglomerates, on one hand they can retain the influence over

the subcontinent‟s economy but on the other, they may prove to be lethal for nascent

firms and budding companies.

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REFERENCES:

http://en.wikipedia.org/wiki/List_of_companies_of_Pakistan

http://www.findpk.com/yp/Biz_Guide/html/40%20Richest%20Pakistani.h

tm

http://archives.dawn.com/archives/17434

http://www.cc.gov.pk/index.php?option=com_content&view=article&id=71

&Itemid=132

http://www.cc.gov.pk/index.php?option=com_content&view=article&id=1

55&Itemid=121

Papers:

• Do bank mergers lead to efficiency gains? The Case Study of bank mergers in

Pakistan (working paper)

• Thesis on privatization by prof najeeb A khan

• Banking: Interest spread, inelastic deposit supply and Mergers by Musleh-ud Din

(Chief of Research Pakistan Institute of Development Economics Islamabad)

Documents:

• Competition act 2010