Saturday, February 03, 2024

SIFC approves splitting PIA into two entities, just days ahead of polls

Bi-furcation approved without ascertaining valuation by financial consultant

A Pakistan International Airlines (PIA) passenger plane arrives at the Benazir International airport in Islamabad, Pakistan, December 2, 2015. — Reuters
A Pakistan International Airlines (PIA) passenger plane arrives at the Benazir International airport in Islamabad, Pakistan, December 2, 2015. — Reuters

  • Rs830b outstanding liabilities to be placed in holding company.
  • Cabinet set to approve transaction model for sale of PIA's core operation.
  • Bi-furcation approved without ascertaining valuation by financial consultant.

ISLAMABAD: With just a few days left for general elections, the Special Investment Facilitation Council (SIFC) — under the supervision of the caretaker government — has greenlit the bifurcation of the Pakistan International Airlines (PIA) into two entities, The News reported on Saturday.

Meanwhile, the national airline's outstanding liabilities worth Rs830 billion would be parked in the upcoming holding company. However, the bi-furcation has been approved without ascertaining valuation by the financial consultant.

The caretaker federal cabinet is all set to approve the model of transaction for selling out the core operation of the PIA next week. The commercial banks have agreed to the re-profiling of Rs268 billion debt into conventional and Islamic instruments at a rate of 12% capping for 10 years maturity period but it would be in a floating rate. The outstanding amount will be settled through proceeds, privatisation of the PIA, and amounts to be settled through budgetary allocations.

Sources confirmed to The News that Caretaker Minister for Finance Dr Shamshad Akhtar raised some valid questions over the lack of valuation done by the financial consultants. Although the banks have agreed on the re-profiling of PIA debt, they have not yet assented in writing. It was expected that the Privatisation Commission would prepare a detailed summary for the upcoming cabinet meeting expected to be held on Tuesday or Wednesday.

When The News sent written questions to Caretaker Minister for Privatisation Fawad Hasan Fawad, he replied that the SIFC has endorsed the bi-furcation of the PIA into two entities as proposed by the financial advisor.

The SIFC, he said, also approved the valuation methodology of the PIA which is in line with best international practices and guidelines. The valuation methodology is determined based on a weighted average to arrive at the valuation of PIA, he added.

It is not a real estate asset as in transactions like the PIA, the methodology is used to finalise a band which is not disclosed at an early stage. Then the reference band is carved out. This formula has been presented before the SIFC and they granted their nod on it, he added.

The caretaker federal cabinet’s approval will be sought for the whole segregation plan, valuation methodology, including transaction structure, one plus five-year business plan, and how much investment is expected from potential buyers and how much loans will be retained so all such details would be presented before the cabinet for seeking approval.

He said that the government would not take outstanding liabilities on its books but all these liabilities would be transferred to a holding company. These liabilities would be cleared with the sale of assets in due course of time.

The offshore assets, including the Roosevelt Hotel and another one in Paris (Hotel Scribe), would be developed and none of the offshore assets would be sold out along with the sale of the core business of PIA’s transaction.

He said that these two offshore assets would be transferred into a holding company. He also said that buyers are showing their interest in the PIA as they are showing it to the financial advisor.

“The Privatisation Commission welcomes potential investors and facilitates them in terms of sharing information but we want this transaction should be handed off. The financial advisor should do knocking and data sharing,” Fawad said.

After fair valuation, the federal cabinet’s approval would again be sought. “We are proposing to sell around 55% shares and remaining to be retained so that after its turn around the government could get its due share in improved entity”, he said and added that as of today it is a negative-equity company as they have worked a lot on it as it was very complicated transaction.

It was not an easy task to structure such transactions as they secured solutions to banks’ outstanding loans, settling international creditors, and now turning into transactions on which they would proceed further, the caretaker minister said.

The SIFC also approved the restructuring plan of the FBR which the Election Commission of Pakistan already directed the interim government to leave its implementation up to the elected government coming into power after the elections.