Fauji Foundation to acquire majority stake in Silk Bank

KARACHI: Fauji Foundation has expressed interest in acquiring the majority stake of Silk Bank, according to a notice issued to the Pakistan Stock Exchange on Thursday.

“Silkbank hereby notifies the Pakistan Stock Exchange that the Board of Directors of Silkbank Limited in its meeting held on January 28, 2021, has subject to the approval of the State Bank of Pakistan, given its in-principle approval to allow Fauji Foundation to conduct the required due diligence,” the statement read.

Silkbank has been requested to allow Fauji Foundation to conduct due diligence of the bank, and that Fauji Foundation intends to apply to the SBP for the requisite approval.

According to Silk Bank’s latest annual report for the year ending December 2019, around 62.39pc of the bank’s shares are held by associated companies and related parties. This can be further categorised as the Arif Habib Corporation holds 28.23pc, Shaukat Tarin holds 11.55pc, the International Finance Corporation holds 7.74pc, Zulqurnain Nawaz Chattha 7.47pc, Nomura European Investment Ltd 3.93pc and Bank Muscat holds 3.48pc.

Separately, the directors and chief executive hold 4.84pc of the bank’s shares.

For the year ending December 2019, the bank posted an after tax loss of Rs3,953 million, compared to a profit of Rs1,330 million in 2018. The bank attributed this loss to a delay in payments from real estate customers of the bank. “The bank had to classify lucrative real estate loans on prudent babsi, with a concrete recovery plan in place,” the bank explained.

However, the total deposits of the bank grew from Rs16.9 billion in 2018 to Rs148.85 billion in 2019.

This would be the second bank Fauji Foundation owns a part of, as it already has a stake in Askari Bank. It is not yet clear whether Fauji Foundation intends to run Silkbank separately, or merge Silkbank with Askari Bank.

The acquirer, Fauji Foundation, was founded in 1954 as a charitable trust and was initially designed to help provide welfare for the Pakistan Army’s retired soldiers as well as their dependents. The group now runs more than 18 subsidiaries in industries as varied as fertilisers, cement, power, oil, gas, food, grain, and banking.

The two most important, and most lucrative, of those companies are Fauji Fertilizer Bin Qasim Ltd. and Fauji Fertilizer Company.  Fauji Foundation owns an 18.29pc share in the former and owns 44.35pc of the latter.

While Fauji Foundation itself only has a 7.19pc share of Askari Bank, because Fauji Fertilizer Company and Fauji Fertilizer Bin Qasim own 43.15pc and 21.57pc respectively of Askari Bank, in essence, Fauji Foundation has control over Askari Bank.