RBS Pakistan Acquisition Case - Who Will Win Among MCB and SBP

MCB that signed an agreement on 12th August 2009 with the Royal Bank of Scotland Group plc to acquire 99.37% of the ordinary shares in RBS Pakistan at the cost of USD 85 mn (PkR 7.2 bn) has moved to Supreme Court against State Bank’s decision. State Bank has not yet given regulatory approval to MCB to acquire local operations of RBS.

As per the SBP's sponsor shares circular, sponsors of banks are required to deposit their shares in a blocked account with CDC in order to ensure continued stake/ownership of sponsors/major shareholders in the bank. However, the MCB Bank has not fulfilled the said requirement and sponsor shares of MCB Bank have not been deposited in a blocked account.

Therefore, the central bank has withheld an NOC for the purchase of RBS shares by MCB Bank. However, the SBP did not raise any objection at the time of granting due diligence approval to MCB Bank, after which MCB Bank went into negotiations with the RBS management for the purchase of local operations. The SBP raised objection just after the two parties had finalised the deal. The MCB management had several correspondences with the central bank for the purpose of an NOC.

Normally, in such acquisitions, deal-seeking regulatory approval is the obligation of the acquirer and the seller seeks damages (which in this case is said to be around one billion rupees) upon failure of the acquirer to close the deal. It is believed that December 31 is the deadline provided to MCB Bank to conclude the transaction, which includes an approval from the SBP and the SECP and a mandatory offer from other mandatory shareholders, who hold only 8 percent shares in the bank.