According to Privatisation Commission officials, PIA now has positive equity of Rs30 billion, the 18% sales tax on aircraft leases has been waived, and international routes have also been cleared. Photo: file
ISLAMABAD:
The government has decided to sell its 100% stake in Pakistan International Airlines (PIA), but one-fourth of the shares will only be offered to the winning bidder at a 12% premium on the bid price, with an option to make the payment one year later.
The government has also decided to take only 7.5% of the bid money in cash, while the bidder will invest the remaining 92.5% amount in the PIA company instead of depositing it in the exchequer, government officials told The Express Tribune. During the last failed attempt, the bidder had the option to pay 15% of the bid money in cash.
The decision to offload a 100% stake has been taken after four bidders sought no role for the government in PIA’s affairs once the successful bidding takes place on December 23, according to Privatisation Commission officials.
Bidding will take place next week for 75% of the shares, but the winner will be given the option to buy the remaining 25% shares within one month at a price 12% higher than the bid price, officials said. The premium will be charged for making the payment after one year, instead of paying cash upfront, they added.
Earlier, Prime Minister Shehbaz Sharif had said that the government would sell a 60% stake in PIA on December 23.
Advisor to the PM on privatisation, Muhammad Ali, has confirmed the development.
All bidders wanted a minimum of 75% shareholding for ease of decision-making, while some asked for a 100% stake, said Ali. The government has decided to offer a green shoe option to bidders for the acquisition of the remaining 25% stake at post-money valuation with a 12% premium, according to the advisor.
During the last failed attempt, the government had offered only a 60% stake, but it could not attract any serious buyer except a real estate developer.
However, the Ministry of Finance holds the view that the 12% premium is justified, as the company’s financial health will improve with the government’s 92.5% investment in it, sources said. The finance ministry spokesperson did not comment on this article. Sources said it has been decided that the government will concede its right to claim 100% of the bid money and will receive only 7.5% of it.
However, Ali said the government’s larger objective is to revive PIA and take it back to its past glory. “This requires heavy investment for fleet revamping, acquisition of planes, etc. Therefore, it has been decided that 92.5% of the bid money should go into the company,” the privatisation advisor said.
PIA has lost its glory, and years of mismanagement have brought the company to a point where its revival would require hundreds of billions of rupees in investment and fresh blood to put it on a financially sustainable path. The airline has been run by retired air force officers.
To make it attractive, the government last year parked Rs654 billion of PIA’s debt in a holding company, which is now serviced by taxpayers. For the current fiscal year, PIA will receive Rs34.7 billion from the budget to service the debt and pay pensions and medical bills, according to official documents.
Sources said that despite separating Rs654 billion in financial obligations, the new PIA management will still have to service about Rs26 billion in pending tax and airport liabilities. It will also be required to settle foreign obligations related to lease payments and other aviation service charges.
In the last failed attempt, the government had set an Rs85 billion minimum reference price for a 60% stake when PIA’s net equity was negative Rs45 billion.
According to Privatisation Commission officials, PIA now has a positive equity of Rs30 billion, the 18% sales tax on aircraft leases has been waived, and international routes have also been cleared. They said these measures strengthen the case for attracting a better sale price, particularly when 92.5% of the bid money will again be reinvested in the company.
Sources said the government has booked Rs35 billion in deferred tax credit as part of the PIACL balance sheet, which will relieve buyers of future tax obligations to the extent of the deferred credit.
Pakistan’s leading business families and groups are among the bidders, including the Lucky Cement Consortium, Arif Habib Consortium, Fauji Foundation-owned Fauji Fertiliser and Air Blue.
PIA currently owns 34 aircraft, but only 18 are airworthy. Its biggest asset is its air service agreements with 97 countries and more than 170 paired landing slots across the globe. Highly sought-after slots, such as those at London Heathrow, hold substantial value for PIA bidding.
The government has also made the transaction attractive by assuring additional support to improve the effective net equity position on PIA’s balance sheet, indemnification for the transfer of certain liabilities, and indemnification against legal liabilities.
However, successful bidders will be required to show patience before receiving any dividends from the investment.
