Rs30b net worth set for PIA buyers

May 3 deadline for submission of Statements of Qualification by investors

ISLAMABAD:

Pakistan, on Tuesday, approved the eligibility criteria for prospective buyers to acquire majority stakes in Pakistan International Airlines (PIA), setting a net worth requirement for the buyer at a minimum of Rs30 billion or $100 million.

The Privatisation Commission’s board approved the prequalification criteria for potential bidders and also formed a prequalification committee. The board meeting was chaired by Privatisation Minister Abdul Aleem Khan.

The board convened on the same day the government invited bids for the sale of 51% to 100% stakes in PIA, with a deadline of May 3rd for the submission of Statements of Qualification by investors. The Privatisation Commission released the Expression of Interest to attract potential investors for divesting 51% to 100% shares and the draft Request for Statement of Qualification (RSOQ).

As per the financial criteria approved by the board, the bidder should have a minimum net worth of Rs30 billion or $100 million based on the latest financial accounts. In the case of a consortium bidding, the combined net worth of the consortium must be Rs30 billion, with the lead bidder having a net worth of not less than Rs8 billion or $25 million, according to the approved criteria.

This limit seems relatively low compared to the significant investment required for acquiring the national flag carrier and expanding its operations over the medium term.

According to another criterion, the bidding consortium must demonstrate that non-airline enterprises have a minimum aggregate annual revenue of Rs200 billion or $700 million. The government currently holds approximately 96% of the shares in the total issued capital of PIA.

The government aims to sell the country’s third-highest loss-making entity by June this year. According to the Pakistan Civil Aviation Act and related regulations, a foreign-owned airline cannot acquire majority stakes in Pakistani airlines. Foreign investors would need to partner with local investors to place a bid.

As part of the privatisation process, the government has also submitted a segregation scheme and the Scheme of Arrangement to clean the airline from legacy loans before privatisation. The cabinet has already approved the establishment of a new PIA Holding Company, which will become the parent body of the current Pakistan International Airlines Company (PIACL).

Read Pakistan canvasses interest in purchase of stake in PIA

However, the Securities and Exchange Commission of Pakistan (SECP) has requested the PIA board to obtain approval from the Annual General Meeting for the segregation plan. As of the end of December, PIA had a negative equity of Rs660 billion, out of which Rs55.7 billion of negative equity will be transferred to prospective buyers. The remaining negative equity of Rs604 billion will be transferred to the new holding company.

PIA’s total liabilities amounted to Rs830.8 billion, but Rs628.5 billion of liabilities will be transferred to the Holding Company. The airline’s total assets are estimated at Rs171.4 billion, with Rs25 billion to be retained in the holding company. According to the advertisement, PIA has access to 97 international routes with slots in some of the most attractive international destinations, providing direct flight access to passengers traveling between Pakistan and the large diaspora target markets.

These routes are highly valuable. In the last board meeting, members inquired about the valuation of the international routes, but the financial advisor did not share the details, according to sources.

PIACL will retain core assets, core liabilities, employees related to air transport operations and allied services, rights and obligations under various operational agreements executed by PIACL, including air service agreements, code sharing agreements, fuel supply agreements, passenger sale agency agreements, and foreign loan agreements.

After SECP approval, the existing shareholders of PIACL will become shareholders of PIA Holding Company, and PIACL will become a wholly-owned subsidiary of the PIA Holding Company. The PIA Holding Company will be listed on the stock exchange, and PIACL will be delisted.

There are 16,000 pensioners of PIA, and their liabilities will be transferred to the new Holding Company, with an estimated annual cost of Rs1.9 billion. Additionally, there are 10,857 employees of PIACL, with another 3,021 on the payroll of Sky Rooms Limited. The liabilities of the employees retained in PIA will be borne by the new investors.

There are 11 sales offices, and 14 prime locations are designated as non-core assets and are being transferred to the holding company.The government has also decided to reconstitute the PIA transaction committee and will appoint Abdul Haseeb Khan as legal advisor and Kamran Farooq Ansari as the Director-General of the Privatisation Commission.

Published in The Express Tribune, April 3^rd, 2024.

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