The government may send a delegation from the Privatisation Commission to the United States to search for consultants to advance the transaction of managing the high-value Roosevelt Hotel, New York, in partnership with the private sector. The Privatisation Commission has submitted a summary for Prime Minister Shehbaz Sharif's approval for the visit of the Advisor to the Prime Minister on Privatisation and the Secretary Privatisation from August 20th to 24th, according to sources. The government will spend approximately Rs3 million on the two-person delegation's visit to the US.
It is unusual for a government team to travel overseas to attract financial advisors for privatisation transactions. While roadshows have been held in the past, they were primarily for engaging with potential buyers of government entities or assets, not for securing advisors. The government has already advertised in local and foreign press, seeking expressions of interest from new financial advisors by September 2nd, following the resignation of the previous advisor due to a conflict of interest.
Pakistan had initially hired an American real estate management firm for the privatisation of the Roosevelt Hotel at a total cost of about Rs2.2 billion. It had already paid $1.1 million to the firm, which abandoned the transaction last month citing a "conflict of interest" and offered to return the payments. Jones Lang LaSalle (JLL) had been selected to develop a transaction structure for the hotel's privatisation.
The Roosevelt Hotel, located in the heart of a global commercial and tourism hub, is currently owned by the financially struggling Pakistan International Airlines (PIA). PIA owns the hotel through PIA-Investment Limited, which holds its stakes via a subsidiary registered in the British Virgin Islands. Based on the work done by the previous financial advisor, the government has already approved the transaction structure for the Roosevelt Hotel, New York.
Of the three options evaluated by the financial advisor — outright sale, joint venture with multiple options, and long-term lease — the joint venture model with multiple options was approved. Last month, the government stated that the joint venture option aims to maximise long-term value for the country while ensuring flexibility, multiple exit opportunities, and minimising future fiscal exposure.
Following JLL's withdrawal, there may be doubts among prospective financial advisors about Pakistan's commitment to the transaction, said Muhammad Ali, Advisor to the Prime Minister on Privatisation, explaining the rationale behind the US visit. He said that meetings with at least six prospective financial advisors have already been scheduled for August 21st to 22nd, and the visit is result-oriented. He added that there is a need to reassure potential advisors that most of the groundwork has been completed and the government has finalised the joint venture option.
The government has arranged meetings with CitiBank, Coldwell Banker Richard Ellis (CBRE) — a real estate service provider — Savills, Grey Steel, Ankura, and Cushman & Wakefield. Two of these firms had participated in the previous round of hiring for the financial advisor role.
According to the financial advisor's report on the transaction structure, Pakistan will not need to contribute additional funds for the joint venture, as its share will be in the form of the hotel's land value. "Based on pre-marketing, due diligence, and analysis of the options, the joint venture structure nets the highest value for the government of Pakistan," the advisor stated in its report. The land value will be calculated based on its full potential, including the 32-storey building. The development partner will make two initial deposits. "This option carries the highest risk but also offers the highest net proceeds to Pakistan," the adviser noted in the report submitted last year.
ZTBL transaction
On Friday, the Privatisation Commission signed the Financial Advisory Services Agreement for the privatisation of Zarai Taraqiati Bank Limited (ZTBL). It has engaged a consortium led by Next Capital Limited. Other members of the consortium include Ijaz Ahmed & Associates, Baker Tilly Mehmood Idrees Qamar, Executives Network International, Bridge Public Relations, Savills Pakistan (Pvt) Limited, and Prima Global Consulting (Pvt) Limited.
Post-privatisation, ZTBL, with its nationwide network of 501 branches, will be better positioned to provide more accessible credit to small farmers and rural communities. It will also introduce modern banking technologies and digital solutions for agricultural financing, according to the Privatisation Commission.
However, concerns have been raised that after ZTBL's privatisation, there may no longer be a financial institution fully dedicated to meeting the needs of small farmers. Most major banks do not cater to small farmers, and there are doubts about their claims of providing loans to this sector. Sources also indicated that the central bank does not accurately reflect real lending to farmers, as loans to agro-based industries are also classified as agricultural loans.
Under the agreement, the financial advisor will conduct sell-side due diligence, carry out market sounding, engage with potential investors, structure the transaction, market it to investors, and assist the Privatisation Commission in ensuring a transparent bidding process, as per the press statement.
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