Is the broadcaster about to don the banker hat?

Buying a bank is one of many steps in making it big in Pakistan. Will Salman Iqbal succeed?

Profit Report

Amedia mogul and a UAE based businessman walk into a bank. What do they do? They buy it. That is at least what is happening between Salman Iqbal, Nasser Abdullah Hussain Lootah, and Summit Bank. As per a notice sent to the Pakistan Stock Exchange Salman Iqbal, the owner of the ARY Group, has agreed to subscribe to 25% shares of Summit Bank through a consortium led by Nasser Abdulla Hussain Lootah, a businessman from United Arab Emirates who plans to buy 51% of the bank. Iqbal’s entry onto the scene has been seen as a surprise by many. The Central Bank had formally approved the Lootah transaction a while ago, and Summit Bank was simply waiting for the tender offer. They have it now that Iqbal has declared his intention to subscribe to 25% of the shares. Iqbal plans on buying 25% shares at the price of Rs 2.51 per share. The acquisition will be done by purchasing existing shares at Rs 2.51 and subscribing to new shares as well. This will give him the bank’s majority stake and management control. Salman Iqbal has agreed, in principle, to subscribe to such a number of shares in SBL as part of the Lootah consortium at a subscription price. Lootah had sent an offer letter in October of 2021. In the letter he asked for 51% voting shares, and new ordinary shares through fresh equity injection. The board agreed to handing over 5,976,000,000 ordinary shares without right to Lootah, and also increased the authorised capital from Rs28 billion to Rs90 bil But buying a bank is not a simple matter of paying the money and walking away with the keys. Because of regulations, not everyone can buy a majority stake in a bank, like they can in other listed entities. Banks have checks on who is buying their shares. This too is regulated by the State Bank of Pakistan. As Salman Iqbal along with Looth try to buy Samba Bank, it will be interesting to see how they face the regulatory fire - in particular the SBP’s Fit and Proper Test (FPT).

Why buy a bank?

Owning a bank is the equivalent of making it big in Pakistan and showing you’re legitimate. Owning a bank gives one power to decide who gets to borrow on what terms, and is also an admission ticket into the hallowed halls of high finance in Pakistan. Many industrial houses look to set up a financial services arm of some sort, and owning a bank is the gold standard in this endeavour. IT is also worth adding that many industrial groups have large pools of working capital and a presence in the financial sector helps in placement of these funds in short term instruments that are readily encashable as per requirements yet also yield a return. Not only that, it gets you great power. A similar power is sought often within the media by those that want to own television channels. The power of owning a bank also gets you political clout and protection. Moreover, in absence of the SBP lending to the government, you may or may not get certain pulls with the government as private sector lending is the only option. Previously, Profit had covered individuals and groups interested in buying Samba Bank. These included Fatima Group, TAG, Meezan Bank, and UBL. While the latter three are financial institutions, Fatima Group is not. This is not the first time a business tycoon or business family has shown interest in buying a bank. Previous examples include Malik Riaz and his attempt at buying Burj Bank, which did not work out. In the summer of 2015, Bahria Town began an earnest due diligence of Burj Bank, an Islamic bank and the smallest bank in the country. Burj Bank had functionally been up for sale since the financial crisis of 2008, but had consistently struggled to find a buyer. By early 2016, it looked as though a deal may be possible, but the transaction was blocked at the last minute by the State Bank of Pakistan. The SBP worried that Bahria Town and Malik Riaz were not the kind of people it wanted to entrust with retail deposits from the general public.

Despite being so publicly rebuffed by the country’s most important financial regulator, Malik Riaz was undeterred. He found a way around the SBP’s decision. In order to do that, he needed to find another financial institution to acquire, one that did not take public deposits, and preferably one that did not fall under the purview of the State Bank itself.

In late 2016, he found just such an entity in Escorts Investment Bank. On February 8, 2017, Bahria Town announced its intention to acquire Escorts from the family-owned business group that controlled over 71% of its shares. This is the closest that Malik Riaz was able to get to owning a bank.

What is the FPT?

The SBP conducts Fit and Proper Test (FPT) in order to assess whether an individual can be entrusted to deal with other people’s money. This is standard global practice. However, in the case of Pakistan, one would expect that influential individuals get exceptions, much like other things in life. But not so in this case, SBP is very stringent with the FPT. A number of other important parties have discovered this when trying to acquire a bank by trying to meet capitalization requirements using funds from entities that the SBP did not approve. For starters, they judge you based on your integrity, honesty, and reputation. They check whether you have been convicted in any criminal offence, involved in fraud, forgery or any form of financial crime. The SBP also checks whether there are any adverse findings or any settlements in civil and criminal proceedings related to investments, financial or business conduct, fraud, formation or management of a corporate body. The SBP also checks whether the applicant has been debarred from being CEO, chairman, or director of any company. Not only do you have to live up to the SBPs requirements, but the SBP also checks if the applicant has contravened any requirements and standards of the regulatory system or the equivalent standards of requirements of other regulatory authorities. The SBP checks whether the individ-

ual has been involved with a company or firm or other organisation that has been refused registration/licence to carry out trade, business etc; and whether the individual has been involved with a company/firm whose registration/licence has been revoked or cancelled or gone into liquidation.

The SBP also inspects solvency and financial integrity by assuring the individual has not been associated with any illegal activity especially relating to banking business; and has not been in default of payment of dues owed to any financial institution and/ or default in payment of any taxes individual capacity or as proprietary concern or any partnership firm or in any private unlisted and listed company.

The individual’s track record is assessed to check whether the individual has ever been terminated or dismissed in the capacity of employee, director, or chairman of a company. The person must have an impeccable track record in the companies he/she has served either in the capacity of an employee or director/chief executive or as chairman.

Directors of financial institutions cannot pass the fit and proper test should there be any conflict of interest. The regulations define the term “financial institution” to include “any bank, investment finance company, non-banking finance company, venture capital company, housing finance company, leasing company or modaraba company”.

As per the SBP, any sponsor shareholders/beneficial owners, directors, presidents and key executives (persons subject to FPT) shall become disqualified if they are designated/proscribed or associated directly or indirectly with designated/proscribed entities/persons under United Nations Security Council Resolution or Anti-Terrorism Act 1997.

The interesting thing about FPT is that it is continuous in nature. FPT regulations have been in force for many years, and in 2018 the SBP updated them via a circular to make them continuous. Any subsequent change in this regard shall be immediately disclosed to the Board of Directors and/or the concerned authority including SBP.

So what about Lootah and Iqbal?

If the name Lootah sounds familiar, that is because he was named as one of the main suspects by the FIA in the money laundering case against Summit. NAB was pursuing the case as well and it was only after he became approver against Asif Ali Zardari – the main accused in the case along with his sister Faryal Talpur – that his arrest warrants were cancelled. Lootah putting money back into Summit to ‘revamp’ it after serious financial troubles brought on in some part due to the money laundering scandal is quite ironical, because the FIA, during the course of its investigation revealed that a sum of Rs2.49 billion had actually been paid out to Lootah by the bank, details of which are at best murky.

This means Lootah has already had problems with the FPT, which makes it interesting why the consortium now includes Iqbal, who now has to pass the FPT. Despite being the recipient of the Sitarah-e-Imtiaz, he may also face some challenging questions.

Previously, Iqbal had made three intentions to buy WorldCall after finally revoking his plan despite the lengthy negotiations between ARY and WorldCall. The last attempt to buy worldcall resulted in the PSX volumes rising to unprecedented levels. However, considering the FPT checks on abiding by industry regulations, Iqbal’s bid could face questions.

In December 2016, ARY became the first Pakistani television channel ordered by a British judge to broadcast the summary of a legal judgement against it. Judge Sir David Eady ordered that ARY will have to say thay on Dec 2, 2016, the High Court of Justice ordered the UK broadcaster of ARY News... to pay £185,000 in libel damages to Mir Shakilur Rehman, the Editor-in-Chief of Jang/Geo Group, in relation to seriously defamatory allegations broadcast in 24 programmes which the judge said simply had no foundation. The court also made it clear that it was to be in urdu.

Later Ofcom, a UK based watchdog, released a statement that it was revoking ARY’s broadcast licences.

“The ARY Network held six Television Licensable Content Service (‘TLCS’) licences granted under Part 1 of the Broadcasting Act 1990,” the statement said. For his part Iqbal denies it that the licences were revoked, arguing that his company decided on its own to wrap up its operations in the UK.

The FPT specifically checks for issues with regulators in different industries. Considering the license was revoked, this might pose trouble for Iqbal. Profit has spoken to sources at the SBP about the challenges iqbal might face with the FPT. There has been no comment, even off record.

As a result of their loss in the UK, the ARY Group had to shut down their channel there to avoid such incidents in the future. “We had a legal dispute with Geo group. A lot of people think our licence was revoked but this never happened. We did have to close down the company,” Iqbal told Profit in an interview in 2020. Moreover, Iqbal has had issues with the Pakistan Broadcasters Association which placed allegations of unfair advantages.

The PBA had written a letter to the government hinting at possible favouritism amounting to approximately Rs1 billion, uncovered by government investigators in 2013. It was about an illegal exemption certificate on airtime/content claimed by the Federal Board of Revenue (FBR). The FBR alleged that ARY had evaded this tax through the misrepresentation, concealment, and misuse of exemptions back in 2013.

However, ARY claimed that the correct cost comparisons were not made, citing a different business model to be the reason behind the inflated costs in comparison to other media companies. ARY COMM, ARY Films and TV Productions (Pvt) Ltd used an offshore company, through a tripartite agreement allowed the three companies to settle their receivables and payables for ARY FZ LLC, a Dubai-based offshore company.

According to Iqbal, people have it backwards. ARY did not form offshore companies, they are an offshore company from the get-go, according to him. ARY Digital FZLLC was incorporated in the UAE. “Like I said, I was born in Dubai, we began business in Dubai. We didn’t make an offshore company. We were an offshore company. We invested in Pakistan. Gold business was shifted to Pakistan, we invested money from our businesses into the television business in Pakistan.”

“Dubai has always been the home of the company and still is,” Salman explained. “I could have made a statement when the PBA made a statement, but I have avoided doing so considering it is in the courts. All I can say is that it is a decade old case. It was getting outdated. As for the rest, I’ll wait for the courts to give a decision and then talk about it,” said Iqbal. n

“We had a legal dispute with Geo group. A lot of people think our licence was revoked but this never happened. We did have to close down the company”

Salman Iqbal, CEO of ARY Group