August 19: Commonwealth Development Corporation Group (CDC) of the UK had reached an understanding with Pakistan’s Habib Bank to purchase 20 per cent of the latter’s stake in Himalayan Bank Limited (HBL). But it had to postpone the decision due to the Covid-19 pandemic.

Earlier, CDC had announced in mid-January after its annual general meeting that it will sign the share purchase agreement. However, the bank informed that the agreement has been kept on “hold” for now due to the pandemic.

Tulsi Prasad Gautam, chairman of HBL, said that the bank has been notified by the CDC that the share purchase agreement will be put on hold for 2020 as it is not possible for their representatives to travel to Nepal due to the pandemic.

“They need to come to Nepal to fulfill the required arrangements and procedures before purchasing the shares. However, they could not come to Nepal due to the spread of the coronavirus. That’s why the agreement will be put on hold for now,” he said, adding, “The agreement has been deferred for rest of 2020. They have said that the agreement will be taken forward by analyzing the condition of the pandemic.”

Ashoke SJB Rana, CEO of HBL, said that 80 percent of the Due Diligence Audit (DDA) of the shares owned by Habib had already been completed before the annual general meeting of last year and that the remaining work would be completed after the AGM. “However, that could not happen immediately. The transfer of share ownership will take time because of the current situation.”

The issued capital of Himalayan Bank has become Rs 9.37 billion following the distribution of 10 percent bonus shares after the annual general meeting of FY 2075/76. According to the bank, CDC had agreed to pay Rs 280 per share for the promoter shares owned by Habib. Habib owns 20 percent of the total shares of the bank, which amounts to 10.70 million units of shares.

Habib had first proposed the other promoters of HBL to purchase the shares that they were planning to sell. Habib had made this offer about one and half years ago because legally, the remaining promoters have the first right to buy the shares sold by another promoter. However, Habib made a deal with CDC when the promoter shareholders refused to buy the shares within 45 days of the offer. CDC has 9 percent stake on Habib. The two institutions had already been discussing about trading the shares of Himalayan Bank.

Himalayan Bank has started preparing for a merger even though the share purchase procedure between CDC and Habib has not been completed. Chairman Gautam informed that the board of directors of the bank have already decided to form a merger committee last Sunday but a minute is yet to be prepared for it. According to him, the merger will not affect the sales of the promoter shares. He added that the new board of directors formed seven months ago created a new merger committee after dissolving the one that was formed a year ago because it had not started any work for mergers and acquisitions.

He expressed that the bank is planning to merge with a commercial bank that they can fit in with. According to him, the merger committee is trying to coordinate with various banks before submitting the names of three most suitable banks to the board.  The bank will go for a merger after the board discusses their options and chooses the most appropriate commercial bank.

“It is not appropriate for others to suggest whom we should merge with,” he told New Business Age, adding, “The merger may happen with any bank except government-owned bank and Standard Chartered Bank Nepal.”

Nepal Rastra Bank has used the monetary policy to compel commercial banks, especially the ones with cross holdings to acquire or be acquired by another bank. This is why commercial banks are under pressure to enter into mergers.