The buyer will have the option to settle the remaining payments against PIA’s payables and pay around one-third of the entire transaction price in cash under the proposed arrangements.
According to government sources cited by local media, the proposed agreements also contain a clause that would halt dividend payments to shareholders for three to five years.
The federal government’s rights are not adequately protected by the draft Shareholders Agreement, Sale Purchase Agreement, and Subscription Agreement, according to background conversations with officials involved in the airline’s privatization process and members of the PIA Holding Company Limited (PIAHCL) board.
Former governor of the central bank Tariq Bajwa, conducted a briefing on the proposed Shareholders Agreement that was presented to the PIAHCL board on Monday. Board members were presented with the major points of these draft agreements by the Privatization Commission and financial consultants, according to reports.
The sale of PIA’s majority holdings has been attempted by the federal government, however there have been considerable delays in the process. The revised goal date for privatization is mid-October, as opposed to February and August per the original plans.
The sale of managerial control and 51–100% of PIA interests to purchasers has been approved by the federal government. After being narrowed down to six, these parties are presently researching the airline.
According to the finance ministry, PIA had a loss of Rs75.7 billion for the fiscal year 2022–2023, ranking it as the fourth-highest government-owned company with a loss.
There have been reports that the buyer may settle the outstanding balance against federal government-funded debts after making a partial cash payment to the government. There are worries, nevertheless, that the federal government might not fulfill these responsibilities as soon as possible.
About Rs 630 billion has already been given by the government to the PIA holding company; the finance ministry would pay this sum up to the degree that commercial banks are involved, with the remaining money coming from dividends and the benefits of privatization.
According to reports, the buyer may spread out the necessary investment over a three-year period if the draft deal is approved. Some board members disagreed, saying that the investment should be done during the first year since PIA needs it desperately.
The anticipated amount of money the investor will need to invest is $700 million in order to turn the losing company around.
The buyer is also permitted to incur debt in order to finance these investments. The Privatization Commission and financial experts have suggested that the buyer be allowed to invest with up to 70% loan and the remaining amount with equity.
In this case, the buyer would only have to provide $210 million of its own money; the remaining $490 million would most likely be obtained through loan that is secured by PIA’s assets.
The debt-led investment plan has been met with opposition from the finance ministry, which claims it would negatively impact the PIA holding company’s balance sheet. They think the buyer should invest in equity as allowing debt to be acquired for investment plans would make the business more volatile.
