Govt reaches a deal with banks on PIA loan reprofiling

Govt reaches a deal with banks on PIA loan reprofiling


Privatisation plan envisages offering 51pc shares of the national flag carrier

  • Proceeds to be spent on its revival, buying party will also have to invest an amount equal to its stakes
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ISLAMABAD (Dunya News/Web Desk) – As Islamabad is going ahead with the much-delayed plan to privatise the PIA, sources in the finance ministry say the government has reached a deal on term sheet with the commercial banks from which the national flag carrier obtained a massive loan of around Rs270 billion.

Obviously, an effective privatisation transaction requires a roadmap on how the new controlling authority will deal with the PIA’s financial obligations – one of the lossmaking state-owned enterprises (SOEs) that the International Monetary Fund (IMF) thinks must be disposed of to stop draining the government resources as Pakistan needs to reduce the widening budget deficit.

Hence, the loan repayments to the commercial banks will now take 10 years with the interest rate set at 12 per cent after the deal has been reached in principle for debt reprofiling.

The term “term sheet” refers to a non-binding agreement that sets out the basic conditions for making an investment. It serves as a template for developing more detailed documents that are legally binding.

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On the other hand, “debt reprofiling” [also called loan reprofiling] is a type of debt restructuring, meaning the period initially agreed for repayment is extended while keeping the overall value of that debt unchanged.

Sources in the Privatisation Commission say 51 per cent of the PIA shares would be offered to the interested parties while the remaining 49pc are going to the represent the government stakes.

As far as the proceeds obtained through the privatisation are concerned, the sources say the amount would be spent on reviving the national flag carrier, while the party buying the majority 51pc shares is going to the investment an equal amount for the purpose.

Once the PIA becomes a profitable entity, the dividends are to be used for loan repayment while the term sheet also envisages issuance of sukuk, Islamic and conventional bonds to the eight commercial banks involved in the matter.