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Tunisia: Bids Back On?

Recent days have seen some added impetus to the long-awaited further privatisation of Tunisia's sixth-largest commercial bank, Banque du Sud (BS). At the end of last week the country's biggest private-sector bank, Banque Internationale Arabe de Tunisie (BIAT), joined the list of potential suitors still looking to acquire a stake in BS, which has been on offer for over a year.

The interest shown by BIAT comes after the government renewed its drive to sell a 33.5% state share in BS by re-opening, on May 16, a "data room" at the bank's head office designed to give information to potential investors. Both foreign and Tunisian banks alike reportedly remain interested in investing in BS.

For its part, BIAT's interest is still at a very early stage. According to a press release from the bank, initial preparations are being made towards potentially taking part in the official bidding process that is likely to take place later in the year. But with no formal offer having yet been made, no fixed date set for bidding and renewed interest shown by other investors, few analysts will be prepared to speculate on who, if anyone, might eventually emerge with the slice of the pie.

BS, of which considerable chunks are also owned by the state hydrocarbon company, Entreprise Tunisienne d'Activités Pétrolières (ETAP), and the national social security fund, previously underwent a partial privatisation in 1997 when an Italian bank, Monte dei Paschi di Siena, snapped up a 13% stake. A second round of privatisation was then scheduled for June 2004, when three other foreign banks, the French BNP Paribas, and a joint consortium of the Commercial Bank of Morocco (BCM) and the Spanish giant Banco Santander, joined the Italian bank in studying the prospect of a purchase.

However, the process was ultimately fruitless, with no formal offers being made and the 33.5% remaining in government hands. This time around, foreign interest is again represented by BNP Paribas, the Moroccan-Spanish consortium and another French bank, Calyon, which was created last year through the merger of Crédit Lyonnais and Crédit Agricole.

Many analysts consider the previous problems in finding a suitable buyer (and presumably a suitable price) to have been compounded by the unfavourable financial situation in which BS has found itself in recent years. One longstanding snag has been non-performing loans (NPLs), with Agence France Presse (AFP) reporting in June 2004 (at the time of the last bidding process) that the bank had bad debts of over TD400m ($294m). From 2004, provisions set aside for bad loans jumped year-on-year from TD23.4m ($17.2m) to TD32.4m ($23.8m), reaching some 22% of total banking profit (compared to 13.6% for the banking sector as a whole).

At the end of 2003, the bank's auditors noted a TD120m ($92m) deficit in provisions, meaning that any profits made in 2004 were channelled back into provisions. It was not surprising then to see that last year's financial statements showed that the bank just about broke even, a dip from profits of TD2.3m ($1.8m) in 2003. On a brighter note, net banking income rose by 12% year-on-year, from TD72.4m ($55.4m) to TD81m ($63.9m), and deposits rose by 17% during the same period - a sign of continuing consumer confidence in the bank.

However, Hedi Ben Cherif, an analyst at Tunisie Valeurs, says that this continuing problem of provisions and debts means that BIAT's interest in BS is somewhat unexpected. In recent years BIAT has made increasing the level of its own provisions - with a target of 70% coverage - a top priority. If the bank were to buy into BS, and thereby inherit some of its debt problems, it would be undoing much of the progress it had made towards increasing provisions in 2004.

Less surprising, however, is the interest reportedly shown in BS by another Tunisian bank, the Union Bancaire pour le Commerce et l'Industrie (UBCI). Already 50% owned by the French BNP Paribas, UBCI has been expanding its retail banking arm in recent times, although its network of 52 branches remains relatively modest. Buying up BS and its 92 branches would in one strategic swoop allow UBCI to skip several rungs of the expansion ladder. Some even speculate on a medium-term plan of merging the two entities.

The government will be encouraged by all this interest, although it will presumably have to improve some of the previous conditions of the sale - perhaps concerning debt guarantees from public or para-public companies - if it is to receive a decent offer or two. Bringing in a new influx of foreign investment, as well as management and expertise, is doubtless one of the aims in re-opening the door to BS, and forms part of ambitious wider plans to reform and modernise Tunisia's banking sector.

Gradual but significant steps have already been taken towards opening up bank capital to foreign money, beginning with the above-mentioned 1997 ceding of 13% in BS. Later sales were even bigger, with a major French bank, Société Générale, paying 75.5m euros ($71.4m) for 52% of Union International de Banques (UIB) in 2002. Meanwhile, BIAT, as one of the potential suitors for the share in BS, also has a relatively diverse structure in terms of ownership, which includes European, US and local investors, as well as the largest listing on the Tunis bourse.

It remains to be seen whether any of these potential investors, be they Tunisian or foreign, will be able to make an acceptable bid for the offered shares in BS. Given the long-winded and troubled history of the sale, a certain amount of cynicism surrounds any prediction of the final result. And whilst the state's commitment to liberalising the sector is certainly evident, it still directly or indirectly controls roughly 55% of capital in the banking sector. For the moment, most analysts agree that it appears to be a case of wait and see.

© Oxford Business Group 2005

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