Bids from interested parties invited for PIA privatisation
Business
Govt will retain 49pc shares in national flag carrier
ISLAMABAD (Dunya News/Web Desk/Reuters) – The national flag carrier will soon the follow the suit of Lufthansa and Alitalia, as the Privatisation Commission has invited bids from the interested parties so that the government could dispose of PIA’s 51 per cent shares.
The disposal of the flag carrier is a step past elected governments have steered away from as likely to be highly unpopular, but progress on the privatisation will help cash-strapped Pakistan pursue further funding talks with the international Monetary Fund (IMF).
According to the Privatisation Commission, the possible investors are asked to submit their bids by May 3, a process which will lead to the winner gaining administrative control of PIA. However, the government will retain the remaining 49pc shares.
It will be interesting to see how many parties will be in the race and whether the possible investors are local or foreigner. Another aspect to keep an eye on would be from which part of the world they belong to.
DEBT REPROFILING
Last week, the government reached a deal on term sheet with the commercial banks from which the national flag carrier obtained a massive loan.
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 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 12pc 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.
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.
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.
MARKET SHARE
PIA's 23pc share of Pakistan's aviation market is the biggest, and the airline could grow further to exceed historic levels of 30pc, the Privatisation Commission said.
With a fleet of 34 aircraft comprising 17 Airbus A320s, 12 Boeing B777s and five ATRs, the airline loses traffic to Middle Eastern carriers, who have a market share of 60pc, because of an absence of direct flights to destinations.
The carrier has air service pacts with 87 countries, and landing slots at key destinations such as London Heathrow.
RESTRUCTURING
The reorganisation of the business will separate the aviation-related aspects from non-core components, so freeing the operating subsidiary of a large portion of legacy debt.
The restructuring will move out Rs603 billion ($2.2bn) of liabilities, leaving Rs203bn ($730 million) on the balance sheet for the acquired business.
The presentation added that PIA broke even at earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) level in 2023, which the panel projected to continue in 2024.
Besides the losses and debt, however, global aviation regulators have questioned PIA's governance and safety standards for some years.
In 2020, after a PIA plane crash in Karachi killed nearly 100, followed by a fake pilot license scandal, the European Union Aviation Safety Agency (EASA) banned the airline from its most lucrative routes in Europe and Britain.
The ban continues, costing the airline annual revenue of nearly 40 billion rupees, the government has told parliament.
"PIA plans to restore its network, starting routes into the United Kingdom, Western Europe and the United States," read the investment presentation.
PRIVATISATION AND THE IMF
The offer of the stake, which carries management control, follows Pakistan's agreement to fiscal discipline plans with the IMF, from which it secured a $3-billion bailout in June.
Pakistan is now looking to start talks with the lender for a medium-term programme key to shoring up an economy bedevilled by high inflation, low reserves of foreign exchange and high external financing needs.
The IMF wants reforms to the SOEs that more clearly define ownership and government roles.
