PTI govt may okay $125m for Roosevelt
PHOTO: Roosevelt Hotel Website
The Economic Coordination Committee (ECC) of the cabinet, which is scheduled to meet on Wednesday, is expected to approve funding of $125 million to enable Pakistan International Airlines Investments Limited (PIAIL) to rescue Roosevelt Hotel that has fallen into a debt trap and its assets are at risk.
Sources told The Express Tribune that the PIAIL chairman, in its letter sent on August 4, 2020, informed the Aviation Division that the financial health of PIA Corporation Limited (PIACL) neither permitted repayment of $50 million to PlAIL in the near future nor could it borrow any funds on account of a lack of cash flow and already pledged assets.
Therefore, according to the letter, the government of Pakistan has been requested to provide a financing of $125 million urgently, enabling them to secure PIAIL’s most valuable asset.
The Aviation Division had earlier informed the economic decision-making body that in the backdrop of Covid-19 pandemic, the hotel industry had been severely impacted across the globe. PlAIL-owned Roosevelt Hotel in Manhattan, New York has also experienced extreme cash flow constraints since March 2020.
The PIAIL chairman has provided detailed information in this regard pertaining to financial challenges being faced in running Roosevelt Hotel, potential source of funds, union issues, future outlook and board’s decision for government’s consideration and action.
The ECC was informed that even partial operations of the hotel were not sustainable at the moment. Roosevelt Hotel had acquired a loan of $105 million from JP Morgan at an interest rate of 5.05% with maturity in April 2021. Annual interest payment had been calculated at approximately $6 million.
JP Morgan later sold its loan of $68.25 million to MSD PCOF Partners. The sale of the loan complicated the situation for Roosevelt Hotel due to certain reasons.
For the past several years, MSD has been expressing its desire to be a joint venture partner in the development of Roosevelt Hotel’s site. MSD may attempt to leverage its position in achieving the goal. It also holds air rights in the vicinity of Roosevelt.
The PIAIL management was of the opinion that MSD had acquired the major portion of Roosevelt loan - by design - in order to become the sole lender and in case of default, it could quickly step in and seek foreclosure.
The matter was considered by the Roosevelt board in its emergency meeting held on July 3, 2020. It decided that the government of Pakistan should be apprised of the facts and its recommendations should be sent for the government’s consideration.
It proposed that Roosevelt’s operations should be shut down and all union and non-union employees be laid off against severance payment of approximately $20 million.
The board said the current debt of $105 million secured against property mortgage and with PIAIL’s guarantee should be paid forthwith.
It insisted that the $105-million debt and the cost of severance, if any, were Roosevelt’s liabilities and responsibilities, which needed to be paid/retained irrespective of whether the hotel was closed or remained operational.
In the backdrop of the current situation, a meeting was chaired by Adviser to Prime Minister on Finance Abdul Hafeez Shaikh on July 9, 2020 via video link where ministers for aviation and privatisation, Privatisation Commission secretary and senior officers of the Aviation Division and PIAIL participated.
It was decided that based on Roosevelt board’s recommendations, the Aviation Division and the Ministry of Privatisation would submit a joint summary to the ECC for its consideration.
Published in The Express Tribune, August 12th, 2020.
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