Will Malik Riaz finally bid farewell to his banking stint?

KARACHI: A week after being flagged for an unusual increase in stock price and volume traded on the Pakistan Stock Exchange (PSX), Malik Riaz’s Escort Investment Bank has attracted yet another buyer. Arif Habib, representing RMS Private Limited (RMS), officially notified the PSX about their intent to secure a substantial 87.96% stake in the investment bank.

RMS seems to be on an expansionary path as it announced its intention to acquire Baluchistan Wheels a week ago only. “RMS has always been at the forefront of infrastructure development in Pakistan. However, we recognized the need to adapt and diversify to fully leverage the evolving business environment” expounds Zeeshan Ali, CEO of RMS.

Following this announcement, the stock price of Escorts Bank reached Rs 7.19, up by around 16% on Aug 15, 2023 as compared to Aug 11, 2023, the previous week’s end of the day.

Unusual activity on PSX 

This recent development follows closely on the heels of a notice issued by the PSX just the previous week. The notice raised questions about the abrupt and substantial surge observed in share price and trading volume of Escort Investment Bank’s shares between July 03, 2023, and July 31, 2023.

On July 03, 2023, a share of Escorts Bank was valued at Rs 3.20, and the trading volume amounted to 5500 shares. However, by July 31, 2023, the share price escalated to Rs 4.52 per share, marking a substantial 41% increase. Simultaneously, the trading volume skyrocketed by a staggering 19 times, surging to 104,500 shares traded.

Escorts Bank rebutted PSX by stating that they “were not aware of any matter or development and/or material information that may have resulted in the unusual movement of share price”. 

Seems like the increase in share price and volume was because of this new acquirer.  Profit reached out to the CEO of Escorts Bank Basit Rahman Malik for comments but received no response. 

Escort Investment Bank and Malik Riaz 

In July 2017, Bahria Town Private Limited, under the leadership of real estate mogul Malik Riaz, successfully procured a significant 71% shareholding of Escorts Investment Bank at a grand total of Rs 1. This acquisition was accompanied by the assumption of existing liabilities.

This amount of acquisition shows the bad state that the bank was in. Before Bahria Town Pakistan Limited acquired Escorts Bank, the bank defaulted on its obligations worth around Rs57 crore. Of this, around Rs49 crore belonged to deposit holders. Moreover, the investment bank had also been non-compliant with the minimum equity requirement for seven years.

Bahria Town then injected Rs1.2 billion into the bank, paid off outstanding depositors and the markup accrued worth Rs531 million, and also compiled with the minimum equity requirement. It then tried to turn the bank around.

Riaz’s primary motivation for acquiring the bank was to facilitate his real estate venture. His strategic intent was to establish a readily accessible resource for mortgages that could support his numerous housing projects. Regrettably, this original vision did not materialise as intended.

The problem was that the bank was unable to lend at competitive rates due to its low levels of deposits and losses. In addition to that, the bank also has competition from the Government’s initiative for housing finance. Consequently, after grappling with challenges and setbacks, Riaz eventually made the decision to sell the bank altogether.

Previous stints of selling off stake in Escorts Bank 

Riaz has been on the lookout for a buyer for the bank, however, things have not been smooth sailing. There have been two attempts at acquiring Escorts Bank in the last two years, however, the deal did not proceed to a conclusion.

Attempt 1: Sabur Rehman of Progressive Group and J. R Dallas Wealth Management

On August 31, 2021, M. Munir M. Ahmed Khanani Securities contacted Escorts Bank as the managers of Syed Sabur Rehman, of the Progressive Group and J.R Dallas Wealth Management, expressing their joint interest in acquiring over 50% of Escorts Bank’s stake.  

However, on October 28, 2021, J.R. Dallas Wealth Management withdrew, leaving Sabur Rehman as the sole contender for over 50% of Escorts Bank’s shares and control.

Following this development, there was a period of silence regarding the deal. 

On February 14, 2022, Malik Riaz formally terminated the Shares Sale and Purchase Agreement established on September 9, 2021. As a result, on February 21, 2022, Syed Sabur Rehman withdrew the previously announced Public Announcement of Intention (PAI).

Attempt 2: Mian Javed Akhtar, Mohammad Ali Kazmi, and Mian Zeeshan Javaid

In March 2022, AKD Securities represented Mian Javed Akhtar Mohammad Ali Kazmi and Mian Zeeshan Javaid to acquire over 50% of Escorts Bank’s capital. 

On May 1, 2022, Riaz terminated the shares sale and purchase agreement dated March 31, 2022 with Akhtar due to unmet conditions and missed deadlines.

Surprisingly, on May 27, 2022, Riaz informed Akhtar, Javaid, and Kazmi of Bahria Town’s continued interest in selling shares and pursuing fresh negotiations. However, the arrangement fell apart in September 2022 when AKD Securities withdrew the PAI.

Who are the new buyers?

RMS Private Limited is a versatile conglomerate established as a private limited company on October 5th, 2007. Its primary focus is construction services, particularly in areas like dams, roads, bridges, and building maintenance. Beyond construction, RMS is engaged in a wide array of services such as infrastructure development, water management, safety systems, security solutions, and ICT services.

Where does an investment bank fit into the strategy of RMS? What does RMS plan to do with the license of an investment bank?

RMS did not provide specific information beyond stating that their bid was driven by a strategic shift for expansion and diversification. But why would they want to buy a bank that is plagued with losses?

Ali elaborated, “This move will bring a wealth of financial expertise to RMS. Their experience in capital markets, investment strategies and risk management complements our engineering capabilities perfectly. This cross-disciplinary knowledge transfer can facilitate innovation in project design, financial models and sustainable development practices. The synergy allows us to offer a complete suite of services, from project conception to funding and execution.”

“This is part of a strategic shift where we’re not only focusing on engineering excellence but also on providing a complete range of financial services. We see immense potential in Pakistan’s agri and IT sector, and we believe that facilitating funding is a key driver for their growth. By creating a financial institute under the RMS umbrella, we can channel resources to these sectors and make a substantial impact on their development” added Ali.

“While it’s true that Escort Investment bank has faced financial challenges in recent years, we believe that the potential for transformation and growth is significant. We are approaching this acquisition with a clear risk management plan in place. Our combined team of experts from both engineering and finance will work together to identify and address risks proactively, ensuring that the acquisition and enhances our capabilities without jeopardizing our overall stability” added Ali with conviction.

Escorts Bank has been experiencing consistent losses for over the past six years. In 2022, the loss per share worsened to Rs1.45, a decline from Rs0.6 in 2021.