ISLAMABAD: Shareholders of defunct KASB Bank have sought a minimum compensation of Rs14.2 billion from the State Bank of Pakistan (SBP), terming the Rs5.9 billion negative valuation of the bank, determined by AF Ferguson, mala fide and dubious.
On the basis of the negative valuation given by AF Ferguson chartered accountancy firm, the central bank had amalgamated KASB Bank with BankIslami at a nominal price of Rs1,000 in 2015.
The shareholders have now filed Rs14.2 billion claims on account of their valuation of KASB Bank’s investments in other companies and subsidiaries, says a report in Express Tribune.
While accepting a plea of the shareholders in April 2018, the Sindh High Court (SHC) had ordered the SBP to reconsider valuation of KASB Bank and ruled that the central bank did not adequately fulfill its statutory duty to protect the interests of all stakeholders.
The court asked the SBP to revisit the whole process set out for determination of the valuation.
“The entire exercise of valuation was marred with mala fide intent,” claimed the shareholders in a 490-page report submitted to the central bank.
The shareholders believe that their interest was not taken care of and they were ripped off their due compensation.
“Though the amalgamation scheme relied heavily on the valuation report of AF Ferguson, one of the fundamental assumptions of the valuation – capital injection of Rs16 billion on May 31, 2015 – did not occur, which makes the entire exercise of amalgamation, considering the negative valuation of KASB Bank, dubious,” the report said.
The shareholders pointed out that AF Ferguson did not bother to undertake market-based valuation of KASB Bank’s 40.2% stake in Shakarganj Food Products despite having clear scope envisaged under a tripartite agreement.
Similarly, KASB Securities was one of the core assets of KASB, which has not been properly valued in the valuation report.
“If the unbiased valuation of KASB Bank, including its investments, is made, then its valuation shall not be less than Rs14.2 billion,” said the claim filed by the shareholders.
On the basis of income approach using the Discounted Cash Flow methodology, AF Ferguson arrived at a combined negative value of Rs5.9 billion.
The shareholders stated that in spite of filing their objections, they still had the right to appeal to the Supreme Court of Pakistan.
AF Ferguson prepared the valuation report in March 2015 under a tripartite agreement between the SBP, KASB Bank and AF Ferguson. “However, it is ironic that not only AF Ferguson did not adhere to it, there were major changes in assumptions subsequent to the issuance of valuation report that altered entire dynamics of the valuation and such changes were not adjusted in the valuation report, hence deprived the shareholders of their right,” the report stated.
The shareholders stated that the biggest lacunae in the valuation were the assumption of immediate capital injection amounting to Rs16 billion. This single assumption turned positive valuation of the core banking business into negative.
Subsequently, no such capital injection was made. Rather, BankIslami was provided a lucrative incentive in the shape of financing facility of Rs20 billion at almost negligible rates, according to the report.
KASB Bank was holding 40.2% stake in Shakarganj Food Products. However, according to the report, mala fide intent was apparent even before the start of the valuation exercise when citing the paucity of time as well as considering the cost of the assignment. It was inked out in the agreement that AF Ferguson would only perform an indicative valuation of the bank’s investment in Shakarganj Food.
Shareholders have valued KASB Bank’s 40.2% stake at around Rs9.775 billion, but the chartered accountancy firm valued it at only Rs627.9 million.
KASB Bank also invested in Evolvence Capital Limited (ECL) – a UAE-based alternative investment company targeting investment opportunities in emerging markets.
The company currently manages assets of around $500 million. However, AF Ferguson valued it at Rs550 million. Shareholders have demanded Rs888.9 million of ECL shareholding.
While pointing out another lacuna, the shareholders stated that the valuation report unreasonably recommended further provisioning of Rs1.989 billion against loans on the basis of such discrepancies that are generally found in loan portfolios of any bank due to weakness in their Credit Administration Department.
But from the date of amalgamation till December 31, 2017, BankIslami has recovered Rs4.3 billion in the conventional loan portfolio, which indicates excessive provisioning, according to the claims.
The shareholders have also raised objections to the valuation of Hub Property and Gemini Plaza. The valuation report considered a cumulative value of Rs234.3 million for both properties whereas the combined market value of these assets is Rs939 million, according to the shareholders.
The KASB House was also not valued properly and its value should be appreciated by Rs293.3 million to Rs483.5 million. The bank’s investment in under-construction KASB Altitude was also valued at zero in the valuation report.
