Supreme Court dismisses petition challenging merger of KASB-BankIslami

In July, SBP also disposed of all the objections raised by the shareholders regarding the amalgamation of the defunct KASB Bank into BankIslami


LAHORE: The Supreme Court (SC) has disposed of the petition filed by former CEO of defunct KASB bank Khadim Ali Shah Bukhari and other minority shareholders challenging its merger with BankIslami.

In a notification sent to the Pakistan Stock Exchange (PSX) on Monday, BankIslami announced the dismissal of the petition filed by Mr Bukhari and other minority shareholders in the apex court challenging the merger of the defunct KASB Bank with BankIslami.

The KASB-BankIslami amalgamation saga has continued to rage on since its conclusion in May 2015, when KASB Bank was sold for a token price of Rs1,000 by the State Bank of Pakistan (SBP).

In July, SBP also disposed of all the objections raised by the shareholders regarding the amalgamation of the defunct KASB Bank into BankIslami.

On May 14, 2018, the notice inviting objections to the valuation of KASB Bank was published in the leading national and regional dailies informing therein that the valuation report of the bank was posted on the SBP website.

To extend the reach of it to the maximum number of shareholders, the notice was placed on the Central Depository Company (CDC), BankIslami, Pakistan Stock Exchange (PSX) websites.

The notification from the central bank said a copy of the notice was also issued to the 3,999 members/shareholders of the Bank on the given addresses, as per the list obtained from Banklslami, CDC and Pakistan Stock Exchange, however, 720 letters were returned as undelivered.

According to the notice, the members and shareholders of the bank, as on 27-04-2015, were invited to file their written objections to the valuation of the bank as set out in the scheme of amalgamation to the Director, Banking Policy & Regulations Department, State Bank of Pakistan, within 15 days of the notice.

SBP said a total of 319 members/shareholders submitted their objections by the given date i.e. 29-5-2018. In addition, objections from 15 members/shareholders were received after the due date. Objections of all the 334 members/shareholders were considered.

It added “based on the assessment of the objections to the evaluation conducted by the independent evaluator of the bank was considered reasonable.

There was no reason raised by the objecting member and shareholders, which could be considered to necessitate fresh evaluation, said the central bank.

Furthermore, “therefore, the objections, as analyzed above, have not raised any substantial ground for an increase in valuation justifying payment of any compensation to the members and shareholders of the bank,” said SBP.

It concluded hence “the objections stand disposed of accordingly.”

Previously, shareholders of defunct KASB Bank had 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 filed Rs14.2 billion claims on account of their valuation of KASB Bank’s investments in other companies and subsidiaries.

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 fulfil its statutory duty to protect the interests of all stakeholders.

The shareholders pointed out that AF Ferguson did not bother to undertake market-based valuation of KASB Bank’s 40.2 percent 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 had not been properly valued in the valuation report, said the shareholders in their objections.

“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 the income approach using the Discounted Cash Flow methodology, AF Ferguson arrived at a combined negative value of Rs5.9 billion.

BankIslami’s shares were trading at Rs12.50, up Rs0.02 (+0.16 percent). KSE-100 index was trading at 41,370.46 points, down 371.78 points (-0.89 percent) at the time of filing this report.

A bank sold for just Rs1,000. Does it make any sense?