The board of directors of Pakistan International Airlines (PIA) has approved the government’s plan to privatise the national flag carrier ahead of the country securing a new International Monetary Fund (IMF) loan programme, estimating to fetch $250-300 million through the sell-off likely to a Middle Eastern country.
Following its reconstitution on Friday, March 22, the board of directors convened its first meeting on Monday and committed to the government’s timeline to privatise PIA by June 15, 2024.
Some meeting participants expressed confidence that PIA’s sell-off would occur before the country secures the next IMF loan package. Finance Minister Muhammad Aurangzeb is expected to formally approach the IMF for a new loan programme at the Fund’s annual meeting in mid-April 2024.
However, a source dispelled the impression that PIA privatisation is a prerequisite condition for the IMF’s next loan programme.
The PIA board formally approved the appointment of international financial advisor, Ernst & Young, for the privatisation transaction.
According to a source familiar with the developments surrounding the airline’s sell-off, the advisor’s briefing to the board projected that PIA’s privatisation may fetch $250-300 million for the government.
However, the actual value of PIA may differ once interested buyers conduct due diligence of the national carrier.
Read EASA clearance to sweeten PIA sell-off
Progress on the airline’s privatisation front suggests that potential buyers for the national carrier have already expressed their intention to purchase it. They may belong to a Middle Eastern country such as the United Arab Emirate (UAE) or Qatar, the source opined.
In a notification to the Pakistan Stock Exchange (PSX) on Tuesday, PIA Company Secretary Rao Muhammad Imran stated, “the board of directors of the company in its 83rd meeting held on March 25, 2024 (Monday) has approved the Scheme of Arrangement (SOA) for restructuring and privatisation of Pakistan International Airlines Corporation Limited along with its ancillary modalities, to be filed with the Securities and Exchange Commission of Pakistan (SECP).”
The source noted that this was the first meeting of the PIA board following its reconstitution. The newly appointed board endorsed the government’s decisions on the PIA sell-off, as PIA board approval is necessary to proceed with the Privatisation Commission’s plan in line with governing laws.
He said, the board approved all the 30 to 40 steps and procedures related to PIA sell-off. Some, such as the appointment of the international financial advisor Ernst & Young, had already taken place before the board’s reconstitution.
However, selling PIA in a government-to-government or government-to-private sector deal is not as straightforward as projected, said the source. The airline may find a new owner (for 51% stake with management control) by the given deadline (June 15, 2024) only if all procedures are introduced on time and proceed smoothly.
Successfully culminating the privatisation process entails a lot of work, including PIA restructuring, which involves bifurcating the company into two parts. One would hold the core operations of the airline up for sale, while a holding company would manage the debt and liabilities of the airline, including a domestic commercial loan of Rs243 billion and a foreign loan of $88 million.
Speaking to The Express Tribune, PIA Spokesperson Abdullah Hafeez Khan stated that the board meeting lasted about two-and-a-half to three hours.
He contradicted reports that the board of directors discussed an early retirement plan, Voluntary Separation Scheme (VSS), or golden handshake.
He affirmed that the board has committed to implementing the government’s privatisation plan in full compliance and would play its role in achieving the airline’s privatisation on time. PIA has been in the headlines regarding its privatisation for over a decade. Some quarters and political parties in parliament, however, do not find it fitting to sell the loss-making national carrier to a new owner.
The IMF has urged different governments to sell their loss-making assets to halt injecting around half a trillion rupees into them each year with no benefit. The resources spent on them could be diverted to productive projects.
Meanwhile, the federal government is set to provide preferential treatment to two domestic banks and is willing to take responsibility for their $88 million foreign currency lending to PIA without any restructuring.
The handling of the foreign currency loan contrasts with the restructuring of PIA’s Rs243 billion domestic debt, which is being extended for 10 years at reduced interest rates.
Government sources informed The Express Tribune that this decision will impose an additional burden on the exchequer in the shape of high interest rates in dollar terms and exchange rate risks over the next five years.
Out of the $88 million, NBP lent $74 million, and HBL’s share was $14 million. The government is considering partially settling the $88 million, with the remaining $53 million to be managed by the government holding company.
Published in The Express Tribune, March 27th, 2024.
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