OFFER FOR SALE OF SHARES

Transcription

1 INVESTORS ARE ADVISED IN THEIR OWN INTEREST TO CAREFULLY READ THE CONTENTS OF THIS OFFER FOR SALE DOCUMENT, PARTICULARLY THE URISK FACTORS GIVEN AT PARA 4.7U, BEFORE MAKING ANY INVESTMENT DECISION. SUBMISSION OF FICTITIOUS AND MULTIPLE (MORE THAN ONE) APPLICATIONS IS PROHIBITED AND SUCH APPLICATIONS MONEY IS LIABLE TO CONFISCATION UNDER SECTION 18A OF THE SECURITIES AND EXCHANGE ORDINANCE, OFFER FOR SALE OF SHARES PRESENT OFFER CONSIST OF 59,748,500 ORDINARY SHARES (13.28% OF PAIDUP CAPITAL) WITH A GREENSHOE OPTION OF AN ADDITIONAL 60,000,000 ORDINARY SHARES (13.33% OF PAIDUP CAPITAL) IN CASE OF OVER- SUBSCRIPTION AT AN OFFER PRICE OF PKR 21/- PER SHARE (INCLUDING A PREMIUM OF PKR 11/- PER SHARE) THIS IS NOT A PROSPECTUS BY ARIF HABIB BANK LIMITED, BUT AN OFFER FOR SALE BY ARIF HABIB SECURITIES LIMITED, THE PARENT COMPANY, OUT OF ITS EXISTING SHAREHOLDING IN ARIF HABIB BANK LIMITED The subscription list will Insha Allah open at the commencement of banking hours on 29 December, 2007 and will close on 31 December, 2007 at the close of banking hours Advisor & Arranger Underwriters Allied Bank Limited Bank Alfalah Limited Faysal Bank Limited Habib Bank Limited The Bank of Punjab United Bank Limited First Dawood Investment Bank Limited Pak Kuwait Investment Co. (Pvt.) Limited Live Securities (Pvt.) Limited AKD Securities Limited Pak Oman Investment Company Limited Pervez Ahmed Securities Limited Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Limited FDM Capital Securities (Pvt.) Limited Dawood Equities Limited Munaf Sattar Securities (Pvt.) Limited Pak Brunei Investment Co. Ltd. Saudi Pak Leasing Company Limited The date of publication of this Offer for Sale Document is 20 December, 2007

2 AHSL GLOSSARY OF TECHNICAL TERMS AND ABBREVIATIONS Arif Habib Securities Limited CDA Central Depositories Act, 1997 CDC CDS CFS CNIC The Commission / SECP The Bank / AHBL Correspondent Banking CVT Cyber Banking Delivery Channels EPS GOP OFFER OFSD The Central Depository Company of Pakistan Limited Central Depository System Continuous Funding System Computerized National Identity Card The Securities & Exchange Commission of Pakistan Banking activities pertaining to international trade & guarantees Capital Value Tax Online banking Include branch network, ATMs etc. Earnings Per Share Government Of Pakistan ITO Income Tax Ordinance, 2001 KIBOR K Large Banks / Big Banks L / C Mid-market NIM NP Margin Offer for Sale of 59,748,500 shares of PKR 21/- per share at a premium of PKR 11/- per share of, out of the existing shareholding of Arif Habib Securities Limited in the Bank (with a green show option of 60,000,000 shares in case of oversubscription) Offer For Sale Document Karachi Inter Bank Offered Rate Thousand Include: Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, Standard Chartered Bank Limited, United Bank Ltd., National Bank of Pakistan Letter of Credit Refers to medium sized corporate & SME borrowers Net Interest Margin Net Profit Margin Ordinance The Companies Ordinance, 1984 PACRA Peer Banks SBP Smart Branches Stock Exchange / KSE WHT 2PndP Tier Banks 3PrdP Tier Banks Pakistan Credit Rating Agency Include Big Banks, 2PndP Tier Bank & 3PrdP Tier Banks State Bank of Pakistan Technology intensive branch setups with few human resource The Karachi Stock Exchange (Guarantee) Limited Withholding Tax Include: ABN Amro Bank, Askari Commercial Bank Limited, Alfalah Bank Limited, Bank of Punjab, Faysal Bank Limited, Habib Metropolitan Bank Limited, PICIC Commercial Bank Limited Include: Atlas Bank Limited, Bank Al Habib Limited, Bank of Khyber, Bank Islami Pakistan, Crescent Commercial Bank Limited, JS Bank Limited, KASB Bank Limited, Meezan Bank Limited, My Bank Limited, NIB Bank Limited, Saudi Pak Commercial Bank Limited, Soneri Bank Ltd.

3 TU1UT TUAPPROVALS TU2UT TUSHARE TU3UT TUNDERWRITING, TU4UT TUHISTORY TU5UT TUFINANCIAL TU6UT TUMANAGEMENT TU7UT TU8UT TUAPPLICATION TU9UT TUSIGNATORIES TU10UT TUMEMORANDUM Offer for Sale of Ordinary Shares TABLE OF CONTENTS AND LISTING AT THE STOCK EXCHANGEUT... 1 CAPITAL AND RELATED MATTERSUT... 3 COMMISSIONS, BROKERAGE, AND OTHER EXPENSESUT AND PROSPECTSUT INFORMATIONUT AND RELATED MATTERSUT TUMISCELLANEOUSUT...28 AND TRANSFER INSTRUCTIONSUT TO THE OFFER FOR SALE DOCUMENTUT OF ASSOCIATIONUT APPLICATION FORMS

4 PART 1 1 APPROVALS AND LISTING AT THE STOCK EXCHANGE 1.1 APPROVAL OF THE SECURITIES & EXCHANGE COMMISSION OF PAKISTAN The approval of the Securities & Exchange Commission of Pakistan ( SECP or the Commission ) has been obtained for the issue, circulation, and publication of this Offer for Sale Document ( OFSD ) as required under section 62, read with section 57 and section 61 of the Companies Ordinance, 1984 ( the Ordinance ). It must be distinctly understood that in giving this approval, the SECP does not take any responsibility for the financial soundness of any scheme stated herein or for the correctness of any of the statements made or opinions expressed with regard to them. The SECP has not evaluated the quality of the offer, including justification for the premium, and its approval of the offer should not be construed as any commitment to the same. The public / investors should conduct their own independent investigation and analysis regarding the quality of the offer before subscribing. 1.2 CLEARANCE OF THE OFFER FOR SALE DOCUMENT BY THE STOCK EXCHANGE The OFSD has been cleared by the Karachi Stock Exchange (Guarantee) Limited ( KSE or the Stock Exchange ) in accordance with the requirements of its Listing Regulations. While clearing this OFSD, the Stock Exchange neither guarantees the correctness of the contents of this document nor the viability of Arif Habib Bank Limited ( AHBL or the Bank ). The Stock Exchange has not evaluated the quality of the issue, including the justification for the premium and its approval should not be construed as any commitment to the same. The public / investors should conduct their own independent investigation and analysis regarding the quality of the offer before subscribing. 1.3 FILING OF THE OFFER FOR SALE DOCUMENT AND OTHER DOCUMENTS WITH THE REGISTRAR OF COMPANIES On behalf of Arif Habib Securities Limited ( AHSL or the Offerer ), the Bank has delivered to the Registrar of Companies, Companies Registration Office ( CRO ), Karachi, as required under section 57(3) and 57(4) of the Ordinance, a copy of the OFSD signed on behalf of AHSL, together with the following documents attached hereto: (a) A letter dated October 22, 2007 from the Auditors of the Bank, M/s. M. Yousuf Adil Saleem & Co., Chartered Accountants, consenting to the publication of their name in the OFSD, as required under section 55 of the Companies Ordinance, 1984, which contains in Part V certain statements and reports issued by them as experts (which consent has not been withdrawn). (b) Written confirmations of the Auditors, Legal Advisor, and Bankers to the Offer mentioned in this OFSD consenting to act in their respective capacities, as required under section 57(5) of the Ordinance. (c) Copies of material contracts and agreements mentioned in Part 7.8 of this OFSD as required under section 57(4) of the Ordinance. (d) Consent of the Directors and Chief Executive of the Bank who have consented to their respective appointments being made and their having been named or described as such Directors and Managing Director / Chief Executive in this OFSD, as required under Section 57(3) of the Ordinance, read with sub-clause (1) of clause (4) of part 1 of the second schedule of the Ordinance

5 1.4 LISTING AT THE STOCK EXCHANGE An application has been made to the Karachi Stock Exchange for permission to deal in and for the quotation of the shares of the Bank. The Bank shall stand provisionally listed for trading and for the quotation of its shares on the Exchange from the date of publication of OFSD, or any other date as may be specified by the KSE under the Regulation for Future Trading in Provisionally Listed Companies. If for any reason, the application for formal listing is not accepted by the Stock Exchange, the Bank undertakes that a notice to that effect will immediately be published in the press, and thereafter application money to the applicants will be refunded in pursuance of this Offer for Sale Document, as required under the provisions of section 72 of the Ordinance

6 PART 2 2 SHARE CAPITAL AND RELATED MATTERS 2.1 SHARE CAPITAL No. of shares Face value Premium Total AUTHORIZED CAPITAL 600,000,000 Ordinary shares of Rs. 10/- each 6,000,000,000 6,000,000,000 ISSUED, SUBSCRIBED, & PAID UP CAPITAL Issued for cash 428,500,000 Ordinary shares of Rs. 10/- each 4,285,000,000 1,500,000,000 5,785,000,000 Other than cash 21,500,000 Ordinary shares of Rs. 10/- each 215,000, ,000, ,000,000 Total 4,500,000,000 1,500,000,000 6,000,000,000 No. of shares Face value Premium Total THE EXISTING ISSUED, SUBSCRIBED & PAID UP CAPITAL OF THE BANK IS HELD AS FOLLOWS: Directors of the Bank 1 Mr. Arif Habib Mr. Salim Chamdia ,000,001 Mr. Nasim Beg 10,000,010-10,000,010 15,001 Syed Ajaz Ahmed 150, ,010 75,001 Mr. Asad Ullah Khawaja 750, ,000 1,000,010 1 Mr. Abdul Hamid Miah Shares held by Sponsors 417,082,292 M/s. Arif Habib Securities Ltd. 4,170,822,920 1,497,232,500 5,668,055,420 Others 29,500,000 Rupali Bank Limited 295,000, ,000,000 2,327,702 Arif Habib Group Employees 23,277,020 2,517,500 25,794, ,000,000 Total 4,500,000,000 1,500,000,000 6,000,000,000 PRESENT OFFER No. of shares Face value Premium Total 2,987,425 Employees of the Bank 29,874,250 32,861,675 62,735,925 56,761,075 General Public 567,610, ,371,825 1,191,982,575 59,748,500 TOTAL 597,485, ,233,500 1,254,718,500 UNotesU: (i) As per SBP licence condition (i) the Bank shall be a public limited company and listed on the stock exchange(s) and a minimum of 50% shares shall be offered to the general public within 2 years. The Bank through letter (BPRD (LCGD-04)/625-71/26573/2007/0682) dated October 09, 2007, has obtained NOC from the State Bank of Pakistan for divestment of million shares to the general public. (ii) As per SBP licence condition ix, sponsor directors shall not dispose off their shares for an initial period of 3 years and thereafter only with the specific written approval of the SBP. (iii) In case of oversubscription, the Offerer shall exercise the Greenshoe option, and offer up to 60,000,000 (13.33% of paid up capital) additional ordinary shares out of Offerer s shareholding in the Bank. (iv) The Board of Directors of Arif Habib Securities Limited in the meeting held on October 29, 2007, has approved specie distribution of 1 share of (AHBL) for every 10 shares of Arif Habib Securities Limited (AHSL) held by its shareholders. Accordingly, a total of 30 million shares of AHBL will be issued to the shareholders of AHSL

7 (v) As per Rule 3(I) (IV) of the Companies (Issue of Capital) Rules, 1996, the sponsors shall, at all times, retain at least twenty five per cent (25%) of the paid-up capital of the Bank. (vi) As per Listing Regulation No. 6(A) (7) of the KSE, sponsors shareholding in excess of 25% shall not be saleable for a period of six months from the date of public subscription. (vii) The employees of the Bank have been given a preferential allocation of 2,987,425 ordinary shares (comprising of 5% of the total shares offered excluding the Greenshoe option) in the Offer for Sale of the Bank s shares to which they will subscribe on the day of public subscription. (viii) The shares subscribed by the employees of the Bank shall not be saleable for a period of 6 months from the date of public subscription as per Listing Regulation 6(A) 7(ii). (ix) On 08 April, 2006, 21,500,000 shares of Rs. 10/- each amounting to the total value of Rs. 215,000,000/- were issued for consideration other than cash, pursuant to the scheme of amalgamation of Rupali Bank Limited (Pakistan operations) with and into Arif Habib Rupali Bank Limited. 2.2 OPENING AND CLOSING OF SUBSCRIPTION LIST The subscription list will Insha Allah open on 29 December, 2007 at the commencement of banking hours and will close on 31 December, 2007 at the close of banking hours. 2.3 INVESTOR ELIGIBILITY All Pakistani residents, provident funds/trusts, pension/gratuity funds (subject to the term of their trust deeds), financial institutions and companies, body corporate or other legal entities (to the extent permitted by their constitutive or corporate documents, as the case may be) are allowed to subscribe to the shares offered to the general public. 2.4 OFFER PRICE, MINIMUM AMOUNT OF APPLICATION, AND BASIS OF ALLOTMENT OF SHARES (a) (b) (c) (d) (e) (f) (g) This offer is being made at a price of Rs. 21/- per share of par value of Rs. 10 each. The offer price includes a premium of Rs. 11 per share. Applications must be made for 500 shares or in multiples of 500 shares only. Applications, which are neither for 500 shares nor for multiples of 500 shares, shall be rejected. The minimum amount of application for subscription of 500 shares both in cases of physical transfer and transfer under book-entry system is Rs. 10,500/-. The transfer fee shall be borne by the Offerer. Application for shares below the value of Rs. 10,500/- will not be entertained. FICTITIOUS AND MULTIPLE APPLICATIONS (MORE THAN ONE APPLICATION BY A SINGLE APPLICANT) ARE PROHIBITED AND SUCH APPLICATION MONEY SHALL BE LIABLE TO CONFISCATION UNDER SECTION 18-A OF THE SECURITIES AND EXCHANGE ORDINANCE, If the shares to be offered to the general public are sufficient for the purpose to accommodate all the applications then, all applications shall be accommodated. If this offer is oversubscribed in terms of number of applications and amount, the shares will be allotted by conducting computer balloting in the presence of representatives of the Stock Exchange in the following manner: i. If all applications for 500 shares can be accommodated, then all such applications will be accommodated first. If all applications for 500 shares cannot be accommodated, then balloting will be held among the applications for 500 shares only. ii. If all applications for 500 shares have been accommodated, and shares are still available for allocation, then all applications for 1,000 shares will be accommodated. If all applications for 1,000 shares cannot be accommodated, then balloting will be held among applications for 1,000 shares only

8 iii. If all applications for 500 shares and 1,000 shares have been accommodated, and shares are still available for allocation, then all applications for 1,500 shares will be accommodated. If all applications for 1,500 shares cannot be accommodated, then balloting will be held among applications for 1,500 shares only. iv. If all applications for 500, 1,000 and 1,500 shares have been accommodated, and shares are still available for allotment, then all applications for 2,000 shares will be accommodated. If all applications for 2,000 shares cannot be accommodated, then balloting will be held among applications for 2,000 shares only. v. After the allotment in the above mentioned manner, the balance shares, if any, will be allotted in the following manner: 1. If the remaining shares are sufficient to accommodate each application for over 2,000 shares, then 2,000 shares will be allotted to each applicant and the remaining shares will be allotted on a pro-rata basis. 2. If the remaining shares are not sufficient to accommodate all remaining applications for at least 2,000 shares, then balloting will be conducted for allocation of 2,000 shares to each successful applicant. (h) If the offer is over subscribed in terms of amount only, then the allocation of shares will be made in the following manner: (i) First preference will be given to applicants who applied for 500 shares; (ii) Next preference will be given to applicants who applied for 1,000 shares; (iii) Next preference will be given to applicants who applied for 1,500 shares; (iv) Next preference will be given to applicants who applied for 2,000 shares; (v) After allocation in the above manner, the balance shares, if any, will be allotted on prorata basis to the applicants who applied for more than 2,000 shares. (i) (j) (k) Allocation of shares will be subject to the scrutiny of the applications. Applications, which do not meet the aforementioned requirements, or applications which are incomplete, will be rejected. This is an Offer for Sale of 59,748,500 ordinary shares (13.28% of paid up capital) of the Bank by the Offerer out of its shareholding in the Bank through the Karachi Stock Exchange. In case of oversubscription, the Offerer shall exercise greenshoe option, and offer up to 60,000,000 additional ordinary shares (13.33% of paid up capital) out of its shareholding in the Bank. 2.5 REFUND OF SUBSCRIPTION MONEY TO UNSUCCESSFUL APPLICANTS The Bank on behalf of the Offerer, shall take a decision within 10 days of the closure of the subscription list as to which applications have been accepted or are successful. Refund of money in case of unaccepted or unsuccessful applications will be made within 10 days of the date of such decision, as required under the provisions of section 71 of the Ordinance. As per sub-section (2) of section 71 of the Ordinance, if the refund as required by sub-section 1 of section 71 of the Ordinance is not made within the time specified therein, the Offerer shall be liable to repay the money with surcharge at the rate of 1.5%, for every month or part thereof from the expiration of the 15PthP day and, in addition, to a fine not exceeding Rs. 5,000 and in the case of continuing offence, to a further fine not exceeding Rs. 100 per day after the said 15PthP day of which default continues. Provided, the Offerer shall not be liable if it proves that the default in making the refund was not due to misconduct or negligence on its part

9 2.6 MINIMUM SUBSCRIPTION As this is an Offer for Sale of Shares by Arif Habib Securities Limited, there will be no minimum subscription for allotment of shares. The subscription amount received against the Offer will be accepted up to 59,748,500 shares (including a Green Shoe Option of 60,000,000 shares). 2.7 ISSUE AND DISPATCH OF SHARE CERTIFICATES The Bank will dispatch to the successful applicants, physical share certificates through the Bankers to the Offer or credit to the Central Depository System (the CDS ) accounts within 30 days of the close of the public subscription list, as per Listing Regulations of the KSE. Shares will be transferred either in scripless form in the CDS of the Central Depository Company (the CDC ) or in the shape of physical scrips on the basis of option exercised by the successful applicants. Shares in physical scrip form will be dispatched to the Bankers to the Offer within 30 days from the date of closing of subscription list, whereas scripless shares will be credited through book entry into the respective CDS accounts of the successful applicants maintained with the CDC. The applicants who opt for receipt of shares in scripless form in the CDS should fill in the relevant columns of the Application Form. In order to exercise the scripless option, the applicant should have a CDS account at the time of subscription date. If the Bank defaults in complying with the requirements of the Listing Regulations of the KSE, it shall pay to the KSE a penalty of Rs. 500 per day or part thereof during which the default continues. The KSE may also notify the fact of such default and the name of the Bank by notice and also by publication in its Ready Board Quotation. 2.8 TRANSFER OF SHARES Physical Scrips The directors of the Bank will not refuse to transfer any fully paid shares unless the transfer deed is for any reason, defective or invalid under the provisions of Section 77 of the Ordinance. Provided that the Bank shall within 30 days from which the instrument of transfer was lodged with it, notify the defect or invalidity to the transferee who shall, after the removal of such defect or invalidity, be entitled to re-lodge the transfer deed with the Bank Transfer under book entry system The shares maintained within the CDS in the book entry form shall be transferable in accordance with the provisions of the Central Depositories Act, 1997 and the CDC Regulations. 2.9 SHARES ISSUED IN PRECEDING YEARS The following are the details of the shares issued by the Bank in preceding years. Date Consideration No. of Shares Par value Premium per share Amount Initial Subscription Cash 9, , Cash 128,490, ,284,900, Other than Cash* 21,500, ,000, Cash 150,000, ,500,000, Rights 150,000, ,000,000,000 TOTAL 450,000, ,000,000,000 * 21,500,000 share were issued for consideration other than cash pursuant to the scheme of amalgamation of Rupali Bank Limited (Pakistan operations) with and into Arif Habib Rupali Bank Limited 2.10 PRINCIPAL PURPOSE OF THE OFFER FOR SALE The principal purpose of the Offer for Sale is (i) broadening the investor base through an increase in the number of shareholders, (ii) providing the public investor an opportunity to participate in the future of the Bank with sound prospects, and, (iii) to meet the condition imposed by the SBP for public listing within 2 years of the start of commercial operations

10 2.11 INTEREST OF SHAREHOLDERS None of the shareholders of the Bank have any special or other interest in the property or profits of the Bank, other than as shareholders of the Bank DIVIDEND POLICY The rights in respect of capital and dividends attached to each share are and will be the same. AHBL in general meeting may declare dividends but no dividends shall exceed the amount recommended by the directors. The directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the Bank. No dividends shall be paid otherwise than out of the profits of the Bank for the year or any other undistributed profits. No unpaid dividend shall bear interest or mark-up against the Bank. The dividend shall be paid within the period stipulated in the Ordinance ELIGIBILITY FOR DIVIDEND The disinvested shares of the Bank shall rank pari passu with the existing ordinary shares in all matters including the right to such bonus or right issue and dividend, as may be declared by the Bank subsequent to the date of this OFSD. No dividends have been declared by the Bank till the date of the publication of Offer for Sale Document DEDUCTION OF ZAKAT Income distribution will be subject to the deduction of Zakat at source pursuant to the provisions of the Zakat and Ushr Ordinance, 1980 (XVIII of 1980) WITHHOLDING TAX ON DIVIDENDS Dividend distribution to the shareholders will be subject to withholding tax at source under section 150 of the Income Tax Ordinance, 2001 ( IT Ordinance ) at the rate of 10% for all shareholders as per the Finance Bill, The tax will be deducted at source and will be deemed to be full and final liability in respect of such profits EXEMPTION FROM CAPITAL GAINS Capital gains derived from the sale of listed securities are not liable to income tax pursuant to clause (110) of part 1 of the second schedule of the Income Tax Ordinance. This exemption is presently available up to the income year ending June 30, CAPITAL VALUE TAX (CVT) & WITHHOLDING TAX ON SALE / PURCHASE OF SHARES Pursuant to the provision of section 233(A) of the Income Tax Ordinance and Capital Value Tax (Finance Act 1989) the following charges are applicable on sale and purchase of securities: (a) 0.02% CVT will be charged on purchase of all shares, modaraba certificates, and instruments of redeemable capital as defined in the Ordinance. (b) 0.01% WHT will be charged on sale of all shares, modaraba certificates, and instruments of redeemable capital as defined in the Ordinance DEFERRED TAXATION Deferred tax is recognized using the balance sheet liability method on all temporary differences between the amounts attributed to the assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognized on differences relating to investments in subsidiaries to the extent that they are not likely to reverse in the foreseeable future. Deferred tax asset is measured at the tax rates that are expected to be applied to the temporary differences, based on the laws that have been enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. As on August 31, 2007, the Bank has made a provision of PKR million on account of deferred tax liability

11 TP TP PT For PT P/BV Offer for Sale of Ordinary Shares 2.19 JUSTIFICATION FOR THE PREMIUM The premium of Rs. 11 per share on the face value of Rs 10 per share is considered adequately justified, based on the following: Attractive valuationtp1pt At the price to book value (PBV) multiple of 1.54 X, the offer price is at a deep discount relative to the Bank s peers. Benchmark Sector Big banks 2nd tier banks 3rd tier banks Benchmark P/BV multipletp2pt Fair value Offer price at discount to fair value 55.91% 61.43% 38.28% 44.89% Prospects and synergies The Bank has started its operations with a clear vision and a strategy to gradually expand its products and services, focusing on carefully chosen niches. Business development initiatives tap synergies with the Group concerns. This strategy, supported by positive growth outlook for the commercial banking sector, is expected to provide critical mass and solid foundation to build franchise value. The Bank has, within a short period of time, established nine on-line branches across four cities including Karachi, Lahore, Islamabad and Multan. Its roll-out plan is on course and it has achieved positive profits. Brand franchise The Group has had two successful listings of its financial sector companies: Arif Habib Securities Limited (listed in May 2001), and Arif Habib Limited (listed in December 2006). Both have significantly outperformed the KSE-100 index on a sustained basis as depicted below: Annualized total returns Time horizon KSE-100 Index Company Difference Arif Habib Securities Limited Jun 01-Oct % % % Arif Habib Limited Jan 07-Oct % % % Source: Bloomberg The track record of these companies has created strong goodwill among the investing public. details regarding names of Big banks, Tier II banks, and Tier III banks, please refer to the glossary section multiple: calculations are based on closing prices dated 02 November 2007, and book values as on September

12 2.20 FINANCIAL HIGHLIGHTS Financial highlights of the Bank, as per audited accounts for the period ended August 31, 2007 (08 Months) are given below: BALANCE SHEET Rupees in millions ASSETS Cash & balance with treasury banks 636 Balance with other banks 294 Lending to financial institutions 3,068 Investments 5,564 Advances 3,608 TOTAL ASSETS 14,031 LIABILITIES Deposits & other accounts 7,709 Other liabilities 164 Deferred liabilities 33 TOTAL LIABILITIES 7,906 NET ASSETS 6,125 REPRESENTED BY: Share capital 4,500 Reserves 1,533 Unappropriated profit 134 Surplus on revaluation of assets (42) NET EQUITY 6,125 PROFIT & LOSS Rupees in millions MARK-UP INCOME Mark-up earned 322 Mark-up expensed 146 Net mark-up income 176 Net mark-up income after provisions 176 NON MARK-UP INCOME Fee, commission & brokerage 2 Dividend income 26 Gain on sale of investments 134 Other income 2 Total non mark-up income 164 NON-MARK-UP EXPENSES Administrative & other expenses 230 Total non mark-up expenses 231 PROFIT BEFORE TAX 109 Provision for taxation Current 2 Prior years - Deferred PROFIT AFTER TAX

13 PART 3 3 UNDERWRITING, COMMISSIONS, BROKERAGE, AND OTHER EXPENSES 3.1 UNDERWRITING The present offer of 59,748,500 shares at a price of Rs. 21 per share (excluding the Greenshoe option) has been fully underwritten as follow: S. No. Name of the underwriter No. of shares Amount (Rs.) 1. Allied Bank Limited 6,500, ,500, Bank Alfalah Limited 6,500, ,500, Faysal Bank Limited 6,500, ,500, Habib Bank Limited 6,500, ,500, The Bank of Punjab 6,500, ,500, United Bank Limited 6,500, ,500, First Dawood Investment Bank Limited 3,000,000 63,000, Pak Kuwait Investment Co. (Pvt.) Limited 1,000,000 21,000, Live Securities (Pvt.) Limited 2,248,500 47,218, AKD Securities (Pvt.) Limited 2,000,000 42,000, Pak Oman Investment Co. Ltd. 2,000,000 42,000, Pervez Ahmed Securities Limited 2,000,000 42,000, FDM Capital Securities (Pvt.) Limited 2,000,000 42,000, Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Limited 2,000,000 42,000, Dawood Equities Limited 2,000,000 42,000, Munaf Sattar Securities (Pvt.) Limited 1,000,000 21,000, Pak Brunei Investment Co. Ltd. 750,000 15,750, Saudi Pak Leasing Company Limited 750,000 15,750,000 TOTAL 59,748,500 1,254,718,500 If, and to the extent, shares hereby offered are not subscribed and paid for in cash and in full by the closing of the subscription list, the underwriters shall, within 15 days of being duly called by the Offerer to do so, subscribe and pay for, or procure subscribers to subscribe and pay for, in cash and in full, those shares not so subscribed, in proportion to their underwriting commitments. In the opinion of the Offerer, the resources of the underwriters are sufficient to discharge their underwriting commitments. 3.2 BUY-BACK / REPURCHASE AGREEMENT THE UNDERWRITERS HAVE NOT ENTERED INTO ANY BUY-BACK / REPURCHASE AGREEMENT WITH THE OFFERER OR ANY OTHER PERSON IN RESPECT OF THIS OFFER. 3.3 UNDERWRITING COMMISSION The underwriters have been paid an underwriting commission at the rate of 0.5% of the amount of the offer underwritten by them. In addition, a take up commission at the rate of 1.0% shall be paid to the underwriters on the value of shares required to be subscribed by them by virtue of their respective underwriting commitments. 3.4 COMMISSION TO THE BANKERS TO THE OFFER A commission at the rate of 0.25% of the amount collected on allotment in respect of successful applicants will be paid by the Bank to the Bankers to the Offer for services to be rendered by them. No commission shall be paid to the bankers in respect of shares taken up by the underwriters by virtue of their underwriting commitments. 3.5 BROKERAGE Brokerage shall be paid to the members of the KSE at the rate of 1.0% of the value of the shares actually sold through them. No brokerage shall be payable in respect of shares including premium taken up by the underwriters by virtue of their underwriting commitment

14 3.6 EXPENSES OF THE OFFER FOR SALE The expenses of this Offer are estimated not to exceed Rs million, out of which the listing fees of the KSE and membership fees of the CDC shall be borne by the Bank while the balance shall be borne by the Offerer. Expense Rate Amount (Rs) Underwriting commission* 0.50% 6,273,566 Take-up commission* 1.00% 12,547,133 Bankers to the offer commission* 0.25% 6,286,796 Brokerage to the members of the Stock Exchange* 1% 25,147,185 Printing & publication cost 1,000,000 KSE fees and charges 1,489,900 CDC fees and deposits 500,000 SECP application and processing fee 100,000 Transfer fees 4,481,119 Miscellaneous expenses** 500,000 TOTAL 58,325,699 * These amounts represent the maximum possible costs relating to the subscription amount inclusive of Greenshoe option. ** Miscellaneous expenses include stamp papers, printing costs, photocopies etc

15 4 HISTORY AND PROSPECTS PART HISTORY (formerly Arif Habib Rupali Bank Limited) was incorporated in Pakistan as a public limited company on December 09, 2005 under the Companies Ordinance, 1984, and commenced operations as a scheduled bank on 5th August The Pakistan operations of Rupali Bank Limited (Bangladesh) were acquired by Arif Habib Rupali Bank Limited, a subsidiary of Arif Habib Securities Limited, under a Scheme of Amalgamation approved by the State Bank of Pakistan, under Section 48 of the Banking Companies Ordinance, The sponsors have injected amount of PKR billion in the capitalization of the Bank. Within a short time, the Bank has expanded its geographical outreach, and now has a network of nine real-time, online, fully functional branches (5 in Karachi, 2 in Lahore, 1 in Multan, and 1 in Islamabad). Three more branches in Faisalabad and Karachi are expected to be operational by the end of the year. The Bank has also launched SMS / GSM and Web banking. Pakistan Credit Rating Agency (PACRA) and JCR-VIS have assigned the following entity ratings to the Bank: Long Term Short Term PACRA A- (Single A Minus) A2 JCR-VIS A (Single A) A2 4.2 THE SPONSORS TArif Habib Securities Limited ( AHSL ) is the principal sponsor of the Bank. At present it holds 92.68% of the Bank s shares. AHSL is the flagship holding company of the Arif Habib Group, which ranks amongst the fastest growing financial services providers in Pakistan. The Group holds interests in the securities brokerage, asset management, investment advisory, commercial banking, commodities, and private equity, cement, real estate, steel, and fertilizer industries. AHSL has won the Top Companies Award every year since its listing in It has a very strong brand franchise built on years of first rate services to clients and value addition for all stakeholders. 4.3 THE BANK The organizational structure of the Bank has been carefully designed to ensure achievement of its vision and mission, and, pursuance of its guiding principles and core values. The organizational structure is clustered around three distinct groups with their respective portfolios of functions. The structure is presented below in summary form: Group Function Responsibility Business Treasury Corporate & Investment Banking Commercial & SME Banking Consumer Banking Formulation and implementation of the business strategy; Identifying target markets and potential customers; Conducting economic analyses; Updating industry intelligence; Relationship & portfolio management; and, Business & product development. Risk Management Compliance Risk Management Credit Control & Administration Audit and Internal Control (with direct and independent reporting to the Audit Committee of the Board of Directors) Management of: Credit risk; Market risk; Operational risk; Country risk; Capital risk; Legal risk; and Reputation risk

16 Support Operations Administration and Human Resource Management Finance Information Technology Strategic Planning & Development Strong operating platform; Human resource management to foster creativity, team spirit, and performance driven culture; Credible financial and accounting practices in accordance with international standards, and commitment to full disclosure and transparency; Robust and secured IT infrastructure with the capability to generate real time MIS; Clearly define and devise business, operating, and risk management strategies, based on prevailing and anticipated market environment; and Provide support to enable each division of the Bank to fully meet customers expectations. The management has implemented a sound risk management framework for prudent risk assumption, mitigation, and control. Clearly defined risk management policies and procedures are in place, which cover all activities of the Bank. The basic principles of these policies and procedures are to ensure that: (i) Risk exposure remains within the limits established by the Board of Directors; (ii) Decisions are in line with the business strategy and objectives of the Bank; (iii) Expected payoffs adequately compensate for the risks assumed; (iv) Risk decisions are explicit and clear; (v) Prudential exposure limits are maintained; and, (vi) Business managers remain accountable for the risks they pass a judgment on. The Bank is following a multi-tiered approach towards risk management. The ultimate risk management responsibility is vested with the Board of Directors. The Risk Management Group functions as the first line of defense. It comprises of three divisions credit, compliance, and risk management. The Bank has a state of the art IT setup based on Sun Sparc and Sybase Adaptive Servers. The Bank is using hplus TM, a platform-independent, truly centralized, real time online banking application, as its Core Banking Module. All branches are connected through secured radio links for primary connectivity and DSL for secondary connectivity. The infrastructure supports all delivery channels with the capacity to handle 100 online branches. The system has the inbuilt flexibility to support branches. 4.4 GROUP OVERVIEW The Arif Habib Group ranks amongst the fastest growing financial services providers in Pakistan. The success has been made possible by a strong brand franchise built on decades of first-rate services to clients. The Group takes pride in its orientation towards client service. Its key success factors include continuous investment in staff, systems, capacity building, and its insistence on global best practices at all times. The Group holds interests in the securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, private equity, cement, real estate, steel, and fertilizer industries. Several of the Group operations are synergetic and complementary. The Arif Habib Group, through independent entities, operates across the financial services industry: Name of Group Company Arif Habib Securities Limited Arif Habib Investment Management Limited Arif Habib Limited Pakistan Private Equity Management Limited Arif Habib DMCC Industry / Major Business Investments & Holding Company Commercial Banking Asset Management Securities Brokerage & Corporate Finance Private Equity Commodities Brokerage

17 4.5 SECTOR OVERVIEWTP3PT The stellar performance of Pakistani banks witnessed over the last five years stems from their exposure to one of the fastest growing economies in Asia. With one of the highest net interest margins in the region, the profitability of the sector is likely to remain strong over the medium term. High profitability over the last five years has induced the banks to invest in their systems, service capacity, infrastructure, and product development. Over the last five years, banks have been involved in cleaning up their balance sheets and building up the loan portfolios. The strategic thrusts for the future appear to be product innovation and exploration of un-served and under-served market segments. As capital requirements continue to rise and competition heats up, it is expected that banks will compete harder to gain market share and generate incremental returns Assets, liabilities, and equity In the year 2006, the industry balance sheet size crossed the level of PKR 4 trillion. It witnessed a 17% growth in that year. The growth in assets is mainly funded through continued inflows of deposits, borrowings, and equity of the banking companies. Deposits have contributed 60 percent to the growth in total assets followed by equity and borrowings jointly accounting for 32 percent. The loans portfolio of commercial banks has grown from PKR 896 billion in the year 2000 to PKR 2,430 billion in 2006, recording a cumulative growth of over 170% over the six year period. Advances are concentrated in the corporate sector (53%) with a growing share of consumer loans and SME lending. During the year 2006, deposits of the banking system grew strongly at the rate of 13.1% on account of inward remittances, foreign direct / portfolio investments, expanding outreach, and aggressive marketing of products and services. During 2006, 17.4 percent of the growth in total assets was funded by the equity of the banks. This is reflected by an increase of Rs. 113 billion in the equity of banks in 2006 as compared to an increase of PKR 91 billion in One of the primary considerations for equity enhancement is the minimum capital requirement regime for the banks. The SBP has directed banks to increase their paid-up capital to at least PKR 6 billion by the end of Banks have undertaken capital injections in various forms such as fresh equity injection, stock dividends, and consolidation to meet the minimum capital requirements. It is expected that this trend will continue over the medium term Profitability The banking sector has shown impressive profitability growth over the last five years. The sector has posted pre tax profits over PKR 123 billion for the year After tax profits surged to PKR 84 billion for the same period, recording YoY growth of 33%. Pakistani banks have enjoyed healthy net interest margins (NIM) in the recent past. This was made possible in part by the monetary tightening enforced by SBP to counter inflationary pressures. With deposit rates not moving in tandem with lending and investment returns, banks saw a sharp increase in spreads on a growing asset base. Over the last three years, banks have successfully maintained the increased spreads despite rise in deposit cost Outlook The growth projections for the economy suggest that the momentum is likely to continue over the medium term. Deposit growth will likely be fueled by the steady flow of workers remittances and increase in banks outreach. Corporate credit demand is likely to grow at a slower pace in view of the monetary tightening. However, SME and agriculture sectors still hold immense potential to increase their share in the total loan mix. Interest spreads do not seem to face a rapid decline, which bodes well for continuous profitability of the industry. 3 Banking Survey 2005 KPMG Taseer Hadi & Company Banking Sector Review : State Bank of Pakistan

18 Despite significant growth over the past five years, private sector debt / GDP ratio of 27 percent is still low in Pakistan as judged by cross country comparison. Likewise only percent of the adult population has bank accounts. Agriculture and SME credit reaches only 1.5 and 0.17 million borrowers, respectively, and financing to these sectors, despite increases in recent times still accounts for a mere 5.9 percent and 17.4 percent of the total private sector credit. This presents a window of opportunity for banks to reduce the risk of slowdown in their growth. The sector dynamics dictate the need for diversification and outreach in terms of products and customer categories. Industry players are gearing up efforts to support the balance sheet growth and sustain profitability. 4.6 FUTURE PROSPECTS The business strategy of the Bank is based on differentiation in products and services in carefully chosen market niches. The strategy is centered on exploitation of synergies with the Group concerns and capitalizing on the Group s strengths, expertise, and brand equity in various disciplines of financial services. The market niches have been carefully chosen and prioritized on the basis of competitive strengths, level of competition, and sector dynamics. The roll out plans fully addresses the growth objectives and infrastructure / systems requirements. The business plan of the Bank is based on a block building principle. This calls for gradual addition of product and service lines, fully exploiting the competitive edge, and achieving strategic objectives in selected market niches. In line with its strategy of differentiation, the Bank has initially focused on corporate / wealth management. Based on the Group s strength and expertise, the Bank is well-poised to emerge as the bank of choice in this under-served niche. The Bank has also rolled out corporate and investment banking services, targeting corporate and large commercial segments. These identified niches are expected to provide a critical mass in the near term, establishing a foundation to build a strong franchise. Medium term plans include the Bank s entry into commercial mid-markets / SMEs, and the consumer finance segments. These comprise the core commercial banking segments. With the expansion in branch network, it is expected that these, together with cooperate banking activities will account for significantly larger proportion of the Bank s total business going forward. From the very outset, the Bank aims to be fully compliant with all internal and external regulations. The management and the board are committed to follow the international best practices without fail. The Bank s intentions to be compliant with the Basel II capital accord can be gauged from the fact that it started its operations with a Tier I capital well in excess of the minimum requirements. As of August 31, 2007 (audited figures), the Bank s equity figures stood at PKR 6,125/- million. This implies large headroom for book expansion while still being fully in conformity with the Basel II capital requirements Geographical presence The Bank is planning to establish a network of 100 branches (including several smart branches) by the year The branch expansion plan is based on centralized processing center i.e. factory and boutique concept with secure, real-time, and state of the art IT capability. This concept will enable the Bank to establish and configure extensive delivery channels with inherent cost efficiencies Deposit generation The strategy on deposits is based on balanced growth in terms of tenor, size, cost, segmentation, and diversification. Corresponding to the branch expansion, the Bank plans to build business development teams to penetrate the mass market. The growth plan and the strategy are based on the idea of establishing cross selling channels in all operating divisions of the Bank as well as with other Group concerns Assets To obtain the critical mass, the Bank is initially focusing on corporate and large commercial segments. This strategy is based on the principle of reaping the benefit of a large capital base, deployment of resources, and containment of credit risk. The Bank s planned entry into the mid-market and consumer segments will further diversify the advances portfolio, improve the spread, and optimize the risks returns profile

19 4.6.4 General banking A state of the art technology base enables the Bank to establish cost efficient delivery channels. In addition, it also facilitates simultaneous roll out of products and services across the entire network Correspondent banking The Bank is in the process of building correspondent banking relationships with various local and international institutions. At present, 23 local and 40 foreign banks have established such relationships with the Bank. A total of 150 correspondent relationships are targeted for RISK FACTORS The Offerer wishes to highlight the following risk factors, which may affect the returns on investment in the Bank: Deposit cost risk Fixed cost deposits are exposed to interest rate risk. A rapid decline in interest rates may lead to the Bank s marginal lending and investments at lower rates, while fixed term deposit rates may remain higher. The Bank plans to control and manage this risk through its deposit mobilization strategy. The strategy aims to maintain an optimal deposit mix, controlling the weighted average cost. The differentiation strategy of the Bank is focused towards the highest levels of client service, to ensure deposit retention. Interest rate risk Fixed rate advances and investments are exposed to interest rate risk. Interest rate fluctuations may affect the yield on these assets. The Bank s treasury operation is managing the interest rate risk of fixed rate instruments, with a proactive asset allocation strategy. The lending portfolio is largely based on floating mark-up rates. This facilitates fair management of both assets and liabilities. Deposit growth risk The banking sector is becoming increasingly competitive and there is a risk that the deposit growth objectives of the Bank may not be achieved. The performance of the Bank during the last one year reflects the likely success of the Bank s strategy. With the expansion in the branch network, products, and services, sustained deposit growth is expected. Operational risk The Bank is exposed to operational risk stemming from the nature of the business, complexity of financial instruments and products, and cyber banking. The management has assembled a team of qualified and experienced professionals to implement its growth strategy and manage risks in line with global best practices. The Bank has a state of the art IT infrastructure with real time MIS and risk analysis capability. A comprehensive risk management framework is in place, providing constant oversight to the front offices. The management is committed to adhere to the regulatory requirements and industry best practices in all areas of operations. Growth objectives are carefully balanced with the need to implement adequate systems and controls. Regulatory risk Changes in regulatory framework may affect the profitability of the Bank. Continued financial sector reforms and regulatory evolution in Pakistan have compelled banks to more actively manage their operations and continuously upgrade their systems and controls. The Bank, in line with the operating philosophy of the Group, is committed to comply with all regulatory requirements and standards of practice. Assessment and implementation of systems and controls remain dynamic, proactive, and continuous. Operational policies and procedures ensure compliance with regulatory requirements at all times. A case in point is the fact that the Bank is far ahead of several of its peers in terms of minimum capital requirement