F.P. Report
ISLAMABAD: The national flag carrier will soon the follow the suit of Lufthansa and Alitalia, as the Privatisation Commission has invited bids from the interested parties so that the government could dispose of PIA’s 51 per cent shares.
According to the Privatisation Commission, the possible investors are asked to submit their bids by May 3, a process which will lead to the winner gaining administrative control of PIA. However, the government will retain the remaining 49pc shares.
It will be interesting to see how many parties will be in the race and whether the possible investors are local or foreigner. Another aspect to keep an eye on would be from which part of the world they belong to.
Last week, the government reached a deal on term sheet with the commercial banks from which the national flag carrier obtained a massive loan of around Rs270 billion.
Obviously, an effective privatisation transaction requires a roadmap on how the new controlling authority will deal with the PIA’s financial obligations – one of the lossmaking state-owned enterprises (SOEs) that the International Monetary Fund (IMF) thinks must be disposed of to stop draining the government resources as Pakistan needs to reduce the widening budget deficit.
Hence, the loan repayments to the commercial banks will now take 10 years with the interest rate set at 12pc after the deal has been reached in principle for debt reprofiling.
The term “term sheet” refers to a non-binding agreement that sets out the basic conditions for making an investment. It serves as a template for developing more detailed documents that are legally binding.
On the other hand, “debt reprofiling” [also called loan reprofiling] is a type of debt restructuring, meaning the period initially agreed for repayment is extended while keeping the overall value of that debt unchanged.
As far as the proceeds obtained through the privatisation are concerned, the sources say the amount would be spent on reviving the national flag carrier, while the party buying the majority 51pc shares is going to the investment an equal amount for the purpose.
Once the PIA becomes a profitable entity, the dividends are to be used for loan repayment while the term sheet also envisages issuance of sukuk, Islamic and conventional bonds to the eight commercial banks involved in the matter.
