Deadlines on PIA sell-off end

Govt yet to decide process of selling airliner, fails to acquire statutory audit

ISLAMABAD:

The government has missed the deadlines set by the Special Investment Facilitation Council (SIFC) to secure support from official and private creditors for the division of Pakistan International Airlines (PIA) into two entities, a prerequisite for privatisation.

Formal decisions have not been made on whether the privatisation ministry aims to sell the airline to a foreign government through negotiations or complete the process transparently through a competitive process, according to Ministry of Privatisation officials. However, during internal meetings, the privatisation minister has hinted at a potential negotiated deal.

A Scheme of Arrangement for segregating PIA into core and non-core entities couldn’t be filed with the Securities and Exchange Commission of Pakistan (SECP) due to the absence of statutory audited accounts of PIA until September 2023 and no objection certificates from creditors, as per government officials.

Secretary Privatisation Jawwad Paul and Secretary Privatisation Commission Usman Bajwa did not respond to questions regarding the missed SIFC deadlines.

Missing these deadlines could jeopardise the caretaker government’s goal to privatise the country’s third-highest loss-making entity before February 8th—the day when the interim cabinet becomes a lame duck.

The Privatisation Commission board has approved the transaction structure to sell a minimum of 51% stake after cleansing its balance sheet by transferring almost three-fourths of the Rs825 billion to a new company. The board also approved setting up a new holding company in which a majority of the airline’s debt could be parked in order to sell it with a clean balance sheet. However, the Cabinet Committee on Privatisation and the federal cabinet have not yet endorsed the board’s decision.

Spokesperson for the finance ministry, Qamar Abbasi, stated that the Ministry of Finance has been fully supportive of the privatisation process of PIA and has been working closely with the Privatisation Commission. He mentioned that the process to finalise the scheme of arrangements was underway, which would pave the way for finalising modalities for managing debt and resolving any other issues.

The SIFC had set January 11th as the deadline to secure no-objection certificates for moving the debt and trade payables of commercial banks, the Civil Aviation Authority, Pakistan State Oil, Federal Board of Revenue, and National Insurance Corporation Limited into a new company, as per officials.

The civil-military body instructed the privatisation ministry to take all pending actions before the end of this month, with strict adherence to timelines.

The SIFC had asked the ministry to decide by January 15th to 20th whether the airline would be sold through a negotiated deal or a competitive bidding process. It also instructed that the scheme of arrangement should be filed with the SECP by January 20th and get its approval. However, these prerequisites have not been met.

Read PC okays 51% PIA stake sale

The privatisation ministry requires statutory audits of PIA accounts until September 30th, 2023, following the International Financial Reporting Standards. Sources said, the audit is incomplete, and the SECP has refused to grant a waiver.

The privatisation ministry was hopeful of obtaining a waiver from the SECP, but the corporate sector preferred to adhere strictly to the established procedures.

The second requirement for filing the scheme of arrangement is securing no objection certificates from commercial banks for their Rs281 billion lending and government entities for their combined lending of Rs162 billion to PIA.

The SIFC had instructed the CAA, PSO, FBR, and NICL to give their NOCs by January 11th. PIA owes Rs120 billion to CAA, and the status of the NOC from CAA remains unclear.

The FBR needs to recover Rs19 billion from PIA, and the NOC from the tax machinery is pending. The status of the Rs19 billion, whether it will be written off or parked in the new holding company, is also unclear.

Similarly, PSO needs to recover Rs20 billion from PIA, and without an NOC, its debt cannot be transferred to a new entity.

The SIFC set a January 31st deadline to find a solution to the legacy loans of PIA and their settlement, but tangible progress hasn’t been made.

Aviation Secretary Saif Anjum was not available for comments.

According to the financial advisor’s report, PIA’s debt and liabilities have surged to a record Rs825 billion. Financial advisors have proposed parking around Rs640 billion in a new holding company.

The Rs825 billion includes Rs457 billion debt, Rs163 billion loan by the Ministry of Finance to PIA, and Rs83 billion debt of foreign creditors. The commercial banks’ debt amounts to Rs281 billion, and PIA also owes Rs65 billion to its employees.

Numerous meetings have been held between the Ministry of Finance and the Ministry of Privatisation to resolve the issue, but the finance minister is reluctant to take PIA’s debt onto the government’s books.

Qamar Abbasi stated that PIA’s debt management was linked with the finalisation of the scheme of arrangement.

The SIFC also set a January 11th deadline to find a solution to the commercial banks’ Rs281 billion debt.

Published in The Express Tribune, January 17^th, 2024.

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