The government of Pakistan will accept partial cash payment for a majority stake in PIA - Pakistan International Airlines (PK, Islamabad International) and allow debt-funded investments, according to an Express Tribune report.
Citing sources close to matters, the newspaper says draft agreements state that the buyer will have the option of paying around one-third of the purchase price in cash, with the remainder being settled against PIA or government payables. In addition, the buyer may pause dividend payments for up to five years.
The government is attempting to sell between 51-100% of PIA but the process has faced significant delays. Initially scheduled for privatisation in February and then in August, the current target date is now October. Six parties have been shortlisted and are conducting due diligence.
Draft copies of the proposed shareholders agreement, sale purchase agreement, and subscription agreement are now circulating among the upper echelons of the country's civil service, with relevant parties receiving briefings.
According to the newspaper, PIA Holding Company Limited (PIAHCL) board members were briefed on the draft shareholders' agreement on July 29. The Privatisation Commission and financial advisors shared the main features of the agreement with board members.
PIAHCL is a public limited company wholly owned by the Pakistani government. The entity owns 100% of PIA's stock and is responsible for issuing shares to any future shareholders.
The briefing raised several issues, including that potential future payments made to the government to settle liabilities may not be used for that purpose. Additionally, clauses in the draft agreement allow the buyer to spread any capital investment in PIA over three years, rather than the immediate term, sparking concerns the airline may not receive the upfront cash injection it needs. It is estimated the buyer will need to spend around USD700 million to get PIA up to speed. Other proposed clauses regarding any investment allow the buyer to borrow up to 70% of the funds required, leading to concerns that PIA's assets, including its aircraft, will be used to secure the loans.
The draft agreement also proposes that the investment amount guarantee would be an irrevocable, unconditional, and on-demand bank guarantee in favour of PIAHCL, equal to one-third of the investment amount.
Further, the proposals suggest that the new buyer not be allowed to sell its stake for a fixed term, which could be three to five years. However, when this period expires, the buyer will be free to trade its shares on the stock market. As a kind of quasi-compensation for the no-sale period, the buyer would not be required to make dividend payments. This proposal contradicts the government's earlier plan to use privatisation proceeds and dividends to pay down PIA's debts, most of which the government has taken on to make the airline more attractive to potential buyers.
