Many of the oldies will recall the story of the Arab and his camel. In the cold of the desert the camel sought refuge in the tent and subsequently pushed his long neck. Eventually he shoved the Arab and took over the tent. The moral of this ancient tale is that never given in to unreasonable demands because such demands keep on growing and one is the loser.
I do not really know who is the affected party in the much talked about Rupali Bank deal. But at long last the Prince has spoken through his agents and we may now expect the truth. A while ago we heard that he was the highest bidder for the 67.26 per cent of the shares at a price of $330 million. We were impressed and assumed that the tender which had involved international consultants along with several pleasure trips by the Chairman of PC to key cities for a 'road show' would be water tight. It now appears that we had unreasonably banked on the negotiating skills of the consultants and the World Bank. Obviously the tender document was not close ended thereby giving the buyer opportunity not to play ball.
For some reason the Prince was not happy with what he was getting. He wanted more in fact all the remaining equity the government held. The government indulged him and promised to give him 26 per cent at the same rate amounting $128 million. There seems to be no end to princely tantrums. A demand was sought for very special privileges for his acquisition. Firstly he wants a waiver in the matter of shareholdings. Currently the law requires that no single family can hold more than 10 per cent stake or have voting rights in excess of 5 per cent in a bank. If the princely advisors were prudent then they would have done what the schemers behind the Oriental Bank would have done. Breaking up the holding in 5 per cent lots in names of various subsidiary or nominee companies. For the government to give such special privileges would be at a cost to the banking reforms.
The most recent tantrums that we the people are being subjected to are the claims of humiliations that have been done to him by the Privatization Commission, the Ministry of Finance and the media. The Prince stands humiliated so he says while hundreds of the small investors, albeit because of their innate greed have lost a bundle. This is of course of no concern to his highness. He now wants a rebate of $185 million.
We all know that the Prince was the highest bidder in fact much higher than the second or the third bidder. One wonders if he is now suffering from the winner's curse and therefore trying to wriggle out of the deal. The economist's have observed that in public tenders, contractors with lowest sealed bids who are awarded contracts leads to poor workmanship. It has been suggested that a second price auction (lowest bidder wins the contract at the second lowest price) may be more beneficial to those concerned due to the revenue equivalence theory. This implies that, upon certain conditions being met, owners can, in the long run, expect to pay approximately the same amount to contractors irrespective of whether contracts are awarded according to a first price auction or second price auction. At the same time, it is expected to be easier to bid in a second price auction.
People loose face, so has the Prince, when they eventually discover that they have over paid for say a painting in an art auction. In the case of government tenders significant differential between the lowest and the second lowest leads to anxiety on the part of the lowest bidder who feels cheated. The Dutch auction system as a practice in respect of international sale of flowers is one feasible way of running an auction, the only definitive way one can transparently arrive at the right price. It allows everyone to bid aggressively, but since everyone gets the shares at the clearing price, no one ends up looking smarter or dumber than the rest, an issue that is important to professional traders. Truly the Prince is no prince but a crafty Bedouin. We should send him back to his tent and leave us to our fate. The stock exchange should resume the trading of the shares which has been halted far too long for no reason.
