PIA Sale: Govt Offers High-Risk Terms to Buyer

The federal government has proposed risky terms for the sale of majority stakes in Pakistan International Airlines (PIA) by allowing partial payments and debt-funded investments over three years. Under the draft agreements, the buyer can pay one-third of the sale price in cash and settle the rest against PIA’s payables. Dividend payments to shareholders would be paused for three to five years, reported Express Tribune. The buyer may make a partial cash payment and settle the rest against financial obligations, but there are concerns about the government’s ability to settle these obligations promptly. The government has allocated Rs. 630 billion to the PIA holding company, with the finance ministry servicing this amount through commercial banks and the rest is to be covered by privatization proceeds and dividends. The draft agreement allows the buyer to invest over three years. Another term permits the buyer to take on 70 percent debt for investments, raising $490 million through debt and investing $210 million in equity. The finance ministry doesn’t like this due to the risks of negatively impacting PIA’s balance sheet. The draft includes an unconditional and on-demand commercial bank guarantee for one-third of the investment amount. Financial advisors suggest including investment plans in the Shareholders’ Agreement, not the Subscription Agreement, favoring the investor by reducing penalties for breaches. The proposal also prevents the buyer from selling stakes for three to five years. The federal government aims to sell 51-100 percent of PIA stakes, including management control, to one of six shortlisted parties. The privatization process, delayed from February and August, is now targeted for mid-October 2024.