PIA privatisation plan remains foggy

Government undecided on selling minority or majority stake.

Our Correspondent November 18, 2014

ISLAMABAD: Amid growing pressure to complete the privatisation transaction to reduce losses in the national flag carrier, the government remains unable to decide whether it wants to sell minority or majority stake in Pakistan International Airlines.

There is so far no decision whether the government will offer 26%, 51% or 76% of its stake in the PIA to the investors, said Privatisation Commission Chairman, Mohammad Zubair while addressing a press conference on Tuesday. He was responding to a question regarding the fresh deadline to sell 26% shares in PIA.

The government has thrice missed the deadline to sell minimum 26% shares along with the management control and has set a fresh deadline of October next year to complete the deal. Under the $6.7-billion International Monetary Fund (IMF) programme, the government is bound to sell 26% shares of the PIA to a strategic investor. But it is facing resistance from opposition parties, particularly the Pakistan Peoples Party, which is opposed to the privatisation of PIA and Pakistan Steel Mills.

It has already hired a consortium comprising Dubai Islamic Bank, IATA Consulting, Deloitte, HaidermotaBNR, Freshfields Bruckaus Deringer, Abacus Consulting, APCO, Prestige as Financial Adviser (FA) for the transaction.

PIA and PSM are the two main public sector enterprises that are causing huge losses to the exchequer. The service delivery by the PIA also remains poor, providing a reason to the government to hand over its control to strategic investors.

According to the third quarter report of the PIA, the airline incurred Rs20.9 billion losses from January to September this year, taking its total liabilities to Rs288.2 billion. For the last one year (October 2013 to September 2014), the PIA caused Rs31.2 billion losses, shows the report.

Zubair said the government would complete the Allied Bank Limited transaction next month. It is offering the remaining 10% stake in the ABL in a bid to generate about Rs13 billion for budget financing.

The ABL transaction is seen as a test for the government to revive the confidence of investors that was shattered by the recent Oil and Gas Development Company (OGDC) debacle. The investors subscribed to only 52% of the offered shares of OGDC, forcing the government to scrap the deal.

The chairman said that the PC will finalise the financial adviser for selling 42.5% government’s stake in Habib Bank Limited within two weeks. It had already invited expression of interests for hiring the FA and the KASB Securities-led consortium got the maximum scores. However, the PC board had to cancel the bids after State Bank of Pakistan placed moratorium on KASB Bank for not fulfilling minimum capital requirements.

The board decided that it will not issue fresh Expression of Interests for HBL and instead would ask the already interested parties to submit fresh technical and financial bids. The consortium of Citi Bank, Credit Suisse and Arif Habib obtained second highest scores.

The government is expecting a minimum $1.2 billion from the sale of HBL shares through Global Depository Receipts. Zubair said the HBL’s deal will be the single largest equity market transaction of the country.

Published in The Express Tribune, November 19th, 2014.

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Hedgefunder | 7 years ago | Reply

This is a dead dog project, and yet it will cost a fortune to poor taxpayers in just consultancy fees ! This airline is simply not viable with its current business module, its highly unlikely to have any serious buyers for equity, as there is serious competition in this industry with very thin margins, and this airline needs serious blood transfusion to even make it break even, let alone profit.

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