Govt, banks at stalemate over PIA debt restructuring

Finance minister rejects proposals, extends deadline for technical committee

ISLAMABAD:

The government and commercial banks have failed to break an impasse over the restructuring of Pakistan International Airlines’ (PIA) Rs260 billion debt, compelling authorities to grant yet another extension to a committee attempting to find a solution.

Sources from the Privatisation Ministry stated that Finance Minister Dr Shamshad Akhtar has not accepted any of the three proposals presented by commercial banks for debt restructuring. Essentially, what the banks proposed was not restructuring but converting the debt into another form without taking any haircut, they added.

On October 23, Akhtar had set up the technical committee under the chairmanship of the Secretary Privatisation Commission, Usman Bajwa. The committee had been tasked with arranging a new Rs15 billion loan for PIA and restructuring the old debt of Rs260 billion. The Bajwa-led committee has failed to achieve any of these objectives.

The sources mentioned that the banks had proposed that the government convert their debt into Pakistan Investment Bonds (PIB), provide zero-coupon security papers for paying both interest and principals after a certain period, or park the money in a new holding company and service it regularly.

These options were not acceptable to the Ministry of Finance, which has now given another two-week deadline to the technical committee without changing its terms of references, said the sources. When contacted, the spokesman for the Finance Ministry, Qamar Abbasi, said that the Technical Committee has not concluded its deliberations yet. Abbasi said that various proposals were under consideration, and no final recommendations have been made so far.

Bajwa did not respond to questions regarding the recommendations submitted to the finance minister and whether the minister has rejected those recommendations. In October, the government and representatives of commercial banks had initiated discussions to prepare a plan for debt restructuring.

The 12-member committee consists of an equal number of representatives from the federal government and commercial banks. The committee was supposed to come out with the debt restructuring plan by November 8th.

Bajwa had played a role in securing a Rs200 billion fuel relief package from the finance ministry that former Prime Minister Imran Khan had given in February 2022.

The committee includes members from the corporate and investment banking divisions of several banks, including HBL, NBP, Bank of Punjab, Meezan Bank, Askari Bank, and Faysal Bank. As of the end of August, these six banks have collectively provided Rs230 billion in loans to PIA, including Rs193 billion in domestic debt.

There has also not been any breakthrough on the second important task of the committee - arranging the Rs15 billion in new commercial loans for PIA. The banks were reluctant to extend any new loans to PIA until the resolution of the outstanding stock of the debt.

Read: FBR rolls back decision to freeze PIA`s bank accounts

Bajwa did not respond to questions about the way forward after the finance minister’s refusal to endorse the plan and the reasons behind not securing the Rs15 billion loans from banks so far. In September, PIA had requested a moratorium on its Rs260 billion domestic debt repayments to address an annual deficit of Rs153 billion, which is the shortfall between its sales and essential expenditures.

PIA requires Rs3.1 billion per month to service its external debt of Rs109 billion and Rs7.5 billion for servicing its domestic debt of Rs260 billion as of the end of August. The Bank of Punjab has the largest exposure, with over Rs56 billion in loans to PIA, followed by Askari Bank Limited with Rs43 billion, JS Bank with Rs34 billion, NBP with Rs33 billion, Faysal Bank with Rs32 billion, Habib Bank Limited with Rs29 billion, and Bank Islami with Rs22 billion. Albaraka Bank has provided a Rs9 billion loan, and Soneri Bank’s exposure to PIA is Rs5 billion, according to sources.

The government’s plan to privatise PIA is moving at a slow pace, although the privatisation ministry had invoked an emergency clause to hire a financial advisor for preparing the transaction structure for privatisation. The Financial Advisory Service Agreement with the Ernst & Young led consortium was signed as late as November 28th. The other partners of the consortium are Bauer Aviation Advisory, Haidermota & Co, Freshfield Bruckhaus Deringer, Nutshell, and Knight Frank.

As per the agreement, the consortium is required to begin its work within five days after signing the contract.

The timelines suggest that the consortium would need about two months to separate the core and non-core assets and liabilities of PIA. The government wants to sell the core assets, including basic engineering services and routes, to the bidders.

The privatisation ministry had given an end-January timeline to Special Investment Facilitation Council (SIFC) for privatisation, which now seems highly ambitious.

PIA’s global routes are considered to be highly pricey and would be the key factor in getting the maximum price, whenever privatisation takes place.

Published in The Express Tribune, December 3^rd, 2023.

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