Why and how is HBFC being privatised? 

ISLAMABAD: After no other bids were received, the Cabinet Committee on Privatization (CCoP) has finally instructed the Privatization Commission to proceed with a single-source/negotiated transaction for the privatisation of House Building Finance Company Ltd (HBFC). The sole pre-qualified investor, stands to be Pakistan Mortgage Refinance Company Ltd (PMRCL).

What is HBFC Ltd?

HBFC is a housing finance institution which was established in 1952 by the Government of Pakistan.

It was corporatized in 2007 and is now an unlisted public limited company. State Bank of Pakistan (SBP) and Ministry of Finance, jointly hold the capital of HBFC with 90.31% and 9.69% shareholding respectively.

It provides financing facilities for the construction and purchase of houses to middle and lower income groups. It has 51 Branches, 7 Area offices, 3 Regional offices and Head Office which is based in Karachi.

Background:

According to the Finance Division, Finance Minister Ishaq Dar chaired the CCoP meeting. In the meeting, officials from the Privatization Commission informed the ECC that the federal cabinet had approved the privatisation of HBFC on October 31, 2018. 

Subsequently, the Financial Advisory Consortium, comprising MCB Bank, Elixir Securities, and EY Ford Rhodes, was appointed in January 2020.

Ever since then, the Privatization Commission has, till date, granted eight extensions for the Expression of Interest and Statement of Qualification to attract investor interest. However, no response has been received from the market by the due dates.

During the last extended period, four investors, including Pakistan Mortgage Refinance Company, Pakistan Housing Finance Company Ltd, ICD Islamic Development Bank, and IFIC Bangladesh, expressed their interest and submitted their qualifications. However, two international investors, ICD Islamic Development Bank and IFIC Bangladesh, withdrew their interest in HBFC bidding in September and October 2022.

The remaining two investors, PMRC and Pakistan Housing Finance Company Ltd, remained committed. Subsequently, the Privatisation Commission board approved PMRC and PHFCL as pre-qualified bidders on March 21, 2023.

As fate had it, the State Bank of Pakistan (SBP) informed the Privatization Commission during the fit and proper test, about the non-compliance status of PHFCL, thus not recommending it to proceed further with the bidding process.

Sources close to the development of the bidding process, mentioned that the chairman of the Transaction Committee briefed the PC board on June 15, 2023, regarding the FCA’s opinion on single-source bidding of HBFC by PMRC.

After detailed discussions amongst themselves, the PC board recommended to CCoP to consider a single-source/negotiated transaction for the privatisation of HBFC with the sole pre-qualified investor, PMRC Ltd.

What is Single Source Bidding?

Single-source/negotiated bidding refers to a procurement process where a buyer engages in negotiations and enters into a contract with a single pre-selected supplier or investor, rather than conducting a competitive bidding process involving multiple potential suppliers or investors. In this approach, the buyer identifies a specific supplier or investor that meets certain criteria or qualifications and directly engages in negotiations to reach an agreement.

While single-source/negotiated bidding may offer certain advantages such as efficiency, swiftness and flexibility, it can also raise concerns related to transparency, fairness, and competition. That is one of the reasons why the deadline for more bids was increased 8 times.

It is still, however, important to ensure that appropriate measures are in place to mitigate any potential risks and to ensure that the process remains accountable and in line with applicable regulations and guidelines.

What Will the CCoP do?

Following extensive deliberations, CCoP authorised the Privatization Commission to proceed with a single-source/negotiated transaction for the privatisation of HBFC with the sole pre-qualified investor, PMRC Ltd.

The CCoP, after thorough discussion, permitted the Privatization Commission to proceed towards the successful conclusion of the transaction with the completion of the transfer/mutation process in the name of the purchaser.

Privatisation of Other Companies

Apart from this, the Privatization Commission presented a summary on the budget estimates of the Privatization Commission for Fiscal Year 2023-24, amounting to Rs. 1248.8 million. The CCoP approved the summary after careful deliberation.

The Privatization Commission also provided updates on the privatisation of Pakistan Engineering Company (PECO) and the privatisation of Sindh Engineering Limited (SEL), briefing the meeting on their status. After discussion, the CCoP deferred both summaries and directed the Secretary of the Privatization Commission, Secretary of Law & Justice, and Secretary of Industries & Production to hold mutual consultations and propose a future course of action for both cases.

The Privatization Commission also updated the CCoP on the progress of the privatisation process of Roosevelt Hotel, held by Pakistan International Airlines.

Following discussion, the CCoP deferred the summary and requested an update on the privatisation of Roosevelt Hotel after consultation with the Aviation Ministry.