Islamabad Outlines Attractive Terms for Potential Sale of Pakistan International Airlines
The government of Pakistan has proposed buyer-friendly conditions for acquiring a majority stake in PIA – Pakistan International Airlines (PK, Islamabad International), with terms that include partial cash payments and the allowance for debt-funded investments, as reported by the Express Tribune.
Key details emerging from draft agreements indicate that prospective buyers would only need to pay about one-third of the purchase price upfront in cash, with the remaining balance potentially being settled against PIA or government payables. Furthermore, the agreement might permit the suspension of dividend payments for up to five years, providing significant financial flexibility for the new owners.
This move is part of Islamabad’s ongoing efforts to privatize the national carrier, with an aim to divest between 51-100% of its shares. The privatization process, however, has encountered several delays, pushing the target date from an initial schedule in February to a revised aim for October. Currently, six parties have been shortlisted for the sale and are in the process of conducting due diligence.
The draft copies of the shareholders’ agreement, sale purchase agreement, and subscription agreement have been circulated among senior members of Pakistan’s civil service, with detailed briefings being provided to key stakeholders. During a recent meeting on July 29, members of the PIA Holding Company Limited (PIAHCL) board were briefed on these agreements. PIAHCL, a government-owned entity, holds all of PIA’s stock and will issue shares to future shareholders.
Concerns have been raised during these discussions about the structuring of the deal. For instance, there is apprehension that funds designated for settling liabilities might not be utilized as intended. Additionally, the agreements would allow the buyer to spread capital investments over three years and to finance up to 70% of the necessary funds through borrowing. This flexibility, while attractive to buyers, raises concerns about the immediate financial infusion required by PIA, estimated at around USD 700 million.
The proposed sale terms include a safeguard mechanism where the investment amount guarantee must be an irrevocable, unconditional, and on-demand bank guarantee, amounting to one-third of the investment sum, favoring PIAHCL.
Moreover, the draft agreement stipulates a lock-in period during which the new buyer cannot sell its stake, potentially lasting three to five years. Post this period, the buyer would be free to trade its shares on the stock market. To balance this restriction, the buyer would be exempt from making dividend payments during this period. This provision contrasts with the government’s previous strategy of using privatization proceeds and dividends to address PIA’s debts, which have been assumed by the government to enhance the airline’s marketability.
These terms aim to make PIA an attractive investment by easing the financial burden on potential buyers and offering them significant operational leeway post-acquisition.
Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com