ISLAMABAD:
The Privatisation Commission board on Tuesday recommended selling a majority to all stakes of Pakistan International Airlines (PIA) in its second attempt to offload the loss-making entity, while keeping an option to partially retain government ownership.
Headed by newly appointed Advisor to the Prime Minister on Privatisation, Muhammad Ali, the board advised the Cabinet Committee on Privatisation (CCOP) to divest 51% to 100% of PIA’s share capital along with management control, according to a press statement.
In the previous failed attempt, most of the six shortlisted parties were unwilling to partner with the government due to its undue influence on decision-making.
The decision was taken a day after Prime Minister Shehbaz Sharif expressed dissatisfaction over delays in reducing the size of the government. The board meeting also followed Pakistan’s assurance to the International Monetary Fund (IMF) that PIA would be privatised by July this year.
PM Sharif had received a briefing from the Cabinet Committee on Rightsizing of the government on Monday. The PM was not satisfied with the committee’s performance and instructed it to expedite the process, said sources. During the second attempt to privatise PIA, investors will be offered 51% to 100% shares of the airline, said Muhammad Ali. However, he added that the final decision on the number of shares to be sold would be taken after consultations with potential investors.
The Privatisation Commission handout stated that the final terms and conditions for the transfer and acquisition of the equity stake shall be finalised during the bidding process and set out in the bid documents for approval by the CCOP.
The Privatisation Commission had informed the IMF that three parties might take part in the bidding. These include two bidders who previously withdrew from the process after the government refused to waive the 18% sales tax on aircraft leases and remove Rs45 billion in liabilities from PIA’s balance sheet before privatisation.
Sources said that the third potential party might surprise many, as it has no track record in the aviation industry but holds significant influence.
In December, the IMF relaxed these two conditions, which, along with the reopening of European routes, are considered major incentives for the success of the second privatisation bid.
During the last failed bidding attempt, the government had decided to sell a minimum of 60% shares. However, most potential investors demanded 80% to 100% ownership, as they did not want any government role in running the airline’s affairs.
The government’s earlier attempt to privatise PIA failed badly after its weak scrutiny process resulted in selecting a real estate developer as the sole bidder. The sole bidder had offered Rs10 billion, which was significantly lower than the minimum asking price of Rs85 billion.
The government paid Rs1.2 billion in fees to financial advisor Ernst & Young out of the total Rs1.9 billion cost. Former Privatisation Minister Abdul Aleem Khan publicly criticised Ernst & Young’s handling of the transaction. However, the same advisor will be a partner for the second attempt.
The board was informed that the commission was in the process of gauging market sentiment before issuing the Expression of Interest (EOI) to invite investors by the end of this month.
The IMF was told that the EOI would be issued by the end of March. However, it appears this deadline might be missed again.
The government expects the investor shortlisting and due diligence process to be completed from April to June.
Roosevelt hotel privatisation also under review
The Privatisation Commission Board also discussed transaction structure options for privatising Roosevelt Hotel Corporation in New York. It decided to hold a briefing with the financial adviser before making any decisions, according to the Privatisation Commission.
Last week, the CCOP instructed the Privatisation Commission to privatise the lucrative Roosevelt Hotel in New York through competitive bidding but left open the issue of whether to opt for an all-out sale or run the property in partnership.
The CCOP was of the view that the most suitable transaction structure for privatisation should be determined by the Privatisation Commission while considering potential risks and the time required to realise full proceeds. The final proposal would then be presented to the CCOP for approval.
In August last year, the Privatisation Commission board recommended exploring the hotel’s privatisation under a government-to-government mode while keeping all three proposed transaction structure optionsoutright sale, joint venture, or a 99-year leaseon the table for negotiations.
However, the board’s recommendation contradicted the financial advisor’s proposal.
The financial advisor had previously proposed three options: a 100% sale of the hotel land, a joint venture with a prospective development partner for future building development, or a 99-year ground lease with an identified developer. The advisor recommended the joint venture option to maximise gains.
