Rs30bn net worth companies can bid for stakes in PIA

ISLAMABAD: Pakistan’s Privatisation Commission has established net worth requirements of Rs30 billion for potential buyers seeking a majority stake in the national flag carrier Pakistan International Airlines (PIA).

Chaired by Privatisation Minister Abdul Aleem Khan, the commission’s board greenlit prequalification criteria for bidders and formed a committee for the transaction. Inviting bids to sell 51 to 100 percent stakes in the PIA by June, the government has set a May 3 deadline for investor submissions of statements of qualifications. Bidders must meet the Rs30 billion net worth threshold, with consortiums necessitating a combined Rs30 billion net worth. Non-airline enterprises in bidding consortia must demonstrate an annual revenue of at least Rs200 billion.

Foreign-owned airlines are prohibited from acquiring majority stakes, mandating partnerships with local investors. In preparation for privatisation, the government submitted a segregation scheme and Scheme of Arrangement to address legacy loans plaguing the PIA. The cabinet approved the establishment of a new entity, the PIA Holding Company, to serve as the parent organisation of the current Pakistan International Airlines Company (PIACL).

The government plans to cleanse PIA’s legacy loans through the segregation scheme, shifting negative equity and liabilities to the new holding company. The PIACL would become a wholly-owned subsidiary of the PIA Holding Company, to be listed on the stock exchange, with employee and pensioner liabilities transferred accordingly. The reconstituted PIA transaction committee will oversee the sale process, with Abdul Haseeb Khan appointed as legal adviser and Kamran Farooq Ansari as Director-General of the Privatisation Commission.

Details of the Scheme of Arrangement reveal that before bifurcation, total assets amounted to Rs171 billion as of September 2023. Post-split, the Core Undertaking and Non-Core Undertaking assets would be Rs147 billion and Rs25 billion respectively.

PIA’s total liabilities are Rs831 billion as of September 2023, and Rs629 billion would be allocated to the non-core segment (holding company), while Rs202 billion will be allotted to the core undertaking. Currently, PIA’s net equity stands at negative Rs659 billion, with the post-arrangement net equity of the core undertaking projected to be negative Rs56 billion, while the remaining negative Rs604 billion will transfer to Holdco.

On Monday, the PIAA announced plans for a scheme of arrangement to bifurcate its operations, aiming to restructure and reorganise the company, according to a notice issued to Pakistan Stock Exchange (PSX).

The Extraordinary General Meeting (EOGM) of PIAA is scheduled for April 20, 2024, in Karachi, where members will vote on corporate restructuring, including the separation of the business into two segments, i.e. the Core Undertaking (PIA) and the Non-Core Undertaking (Holdco).

This move follows an update on January 11, 2024, regarding the divestment of a 51 percent stake in the PIAA, approved by the Privatisation Commission.

The Scheme of Arrangement was shared with the board of directors on March 25, 2024, with approval granted on March 28. Under the scheme, the non-core undertaking, including hospitality, investments, real estate, and others, would be transformed into PIA Holdco, while the PIA would retain its aviation business.

To safeguard existing shareholders, their equity holding in the PIAA would be replaced with fresh shares issued in Holdco, maintaining the same percentage.

The scheme aims to ensure financial stability for the PIA, requiring significant capital expenditure over the next five years. It would also allow the government to restructure the PIA, operating as a subsidiary of Holdco, facilitating the privatisation process to bring in a strategic partner.

Upon approval by the company, the scheme will be subject to sanction by the Securities and Exchange Commission of Pakistan.