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PIA Faces Bifurcation and Privatization as SIFC Greenlights Restructuring Plan Ahead of Elections

With just a few days remaining until the general elections, the Special Investment Facilitation Council (SIFC), operating under the caretaker government, has given the go-ahead for the division of Pakistan International Airlines (PIA) into two separate entities.

Simultaneously, the substantial liabilities of the national airline, amounting to Rs830 billion, will be placed in an upcoming holding company. Notably, the approval for this bifurcation has been granted without a prior valuation by the financial consultant.

The caretaker federal cabinet is poised to endorse the transaction model for divesting the core operations of PIA in the upcoming week. Commercial banks have agreed to re-profile the Rs268 billion debt into conventional and Islamic instruments at a 12% cap for a 10-year maturity period, albeit with a floating rate. The outstanding amount will be settled through proceeds, PIA privatization, and budgetary allocations.

Sources have confirmed that Caretaker Minister for Finance, Dr. Shamshad Akhtar, raised concerns regarding the absence of a valuation conducted by financial consultants. While banks have agreed to the debt re-profiling, written consent is still pending. It is anticipated that the Privatization Commission will prepare a detailed summary for the upcoming cabinet meeting scheduled for Tuesday or Wednesday.

In response to written questions from The News, Caretaker Minister for Privatization, Fawad Hasan Fawad, stated that SIFC has approved the bifurcation of PIA into two entities, as proposed by the financial advisor. He also mentioned the approval of the valuation methodology, aligning with international best practices.

Fawad explained that the valuation methodology involves determining a weighted average to arrive at the PIA’s valuation, and the Privatization Commission presented this formula to SIFC, obtaining their approval. The caretaker federal cabinet’s approval will be sought for the entire segregation plan, valuation methodology, transaction structure, a one-plus-five-year business plan, and details regarding potential buyer investments and retained loans.

He emphasized that the government will not assume outstanding liabilities, which will be transferred to the holding company and cleared through asset sales over time. Offshore assets, including the Roosevelt Hotel and Hotel Scribe in Paris, will be developed and not sold along with the core business of PIA. These offshore assets will be transferred to a holding company.

Fawad disclosed that potential buyers are expressing interest in PIA, and the Privatization Commission welcomes investors, facilitating them with information. However, he stressed that the financial advisor should handle negotiations and data sharing.

Following a fair valuation, the federal cabinet’s approval will be sought again. Fawad mentioned a proposal to sell around 55% of shares, with the remaining retained for the government to receive its share after the entity’s improvement. He acknowledged the complexity of the transaction, involving solutions for outstanding loans and international creditors, emphasizing the extensive efforts put into the restructuring plan. The SIFC has also approved the FBR’s restructuring plan, with the Election Commission of Pakistan directing its implementation to the incoming elected government after the elections.

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