Key Takeaways:
– The federal government is planning to sell majority stakes in Pakistan International Airlines (PIA) with lenient payment terms.
– Buyers can pay one-third of the price upfront and the rest through debt-funded investments over three years.
– Dividend payments will be paused for three to five years.
Sale Terms for PIA Majority Stakes
The federal government has introduced terms for selling majority stakes in Pakistan International Airlines (PIA), allowing partial payments and debt-funded investments over three years. Under the proposed terms, buyers can pay one-third of the sale price in cash and settle the remaining amount against PIA’s existing payables.
Payment Structure and Financial Obligations
The draft agreement outlines that buyers may make a partial cash payment and settle the rest through financial obligations. However, concerns have been raised about the government’s ability to manage these obligations effectively. The government has allocated Rs. 630 billion to the PIA holding company, with the finance ministry responsible for servicing this amount through commercial banks. The remaining funds are expected to come from privatization proceeds and dividends.
Investment and Debt Terms
The buyer is allowed to invest over a three-year period, with a provision to take on 70 percent debt for investments. This involves raising $490 million through debt and investing $210 million in equity. The finance ministry is wary of this arrangement due to potential negative impacts on PIA’s balance sheet.
Guarantee and Investor Protections
The draft agreement includes an unconditional, on-demand commercial bank guarantee for one-third of the investment amount. Financial advisors recommend placing investment plans in the Shareholders’ Agreement rather than the Subscription Agreement, which favors the investor by reducing penalties for breaches. Additionally, the proposal prevents the buyer from selling stakes for three to five years.
Privatization Timeline
The federal government aims to sell 51-100 percent of PIA stakes, including management control, to one of six shortlisted parties. The privatization process, which has faced delays, is now targeted for completion by mid-October 2024.
