On Thursday, the government made some significant changes to the conditions for potential buyers of Pakistan International Airlines (PIA). The aim? To attract only financially stable bidders for the upcoming second privatization attempt, while also preventing provincial governments from joining in on the bidding process.
Government: Interested bidders can express intent to acquire majority stake in PIA until June 3. Muhammad Ali, the Adviser to the Prime Minister on Privatization, shared with journalists that these new conditions were shaped by lessons learned from the previous unsuccessful privatization effort. To make things easier for investors, the government has also allowed them to switch out the lead member of their consortium up to two weeks before the bidding date.
Ali provided insights into the updated Expression of Interest (EOI) for selling between 51% to 100% of PIA shares, along with management control. The government is hopeful to finalize a deal by the end of this calendar year.
The deadline for prospective buyers to submit their documents is set for June 3, and this excludes both federal and provincial governments and their associated entities.
However, Usman Bajwa, the Secretary of the Privatization Commission, clarified that affiliates of federal and provincial governments that aren’t classified as state-owned enterprises, like the Fauji Foundation, are welcome to participate in the bidding. The Fauji Foundation has been mentioned as a potential consortium interested in acquiring PIA.
Muhammad Ali also noted that the government has permitted the replacement of lead consortium members at least 15 days before the bidding, as long as they meet the pre-qualification criteria and adhere to the Request for Statement of Qualification guidelines.
Usman Bajwa mentioned that the lead consortium member must have a minimum worth of Rs8 billion and will need to pass all necessary checks before being deemed eligible to take part in the bidding process. The privatization adviser added that any changes in the lead consortium member wouldn’t impact the price, as all modifications must be approved and vetted well ahead of the bidding date.
Last year, the government tried to privatize PIA but ended up with just one bidder—a real estate developer—who offered Rs10 billion, far below the minimum price of Rs85.03 billion. This situation raised eyebrows regarding the qualification criteria. Ali pointed out that the government has waived the 18% GST on the purchase or lease of aircraft for PIA, and the negative equity can also be adjusted based on feedback from interested parties.
According to the privatization adviser, the reference price is expected to be better than the previous Rs85.03 billion due to improvements in the airline’s balance sheet, the opening of European routes, and the settlement of the 18% GST.
When asked about the financial status, the Privatisation Commission secretary stated that, based on the approved accounts, PIA’s assets and liabilities are relatively unchanged. However, he noted that the overall balance sheet has improved thanks to a deferred tax credit of Rs30 billion booked this year, which has contributed to showing profits. “One of the reasons for PIA’s profitability is the adjustment of past tax credits at the current value of Rs30 billion,” the privatization secretary explained. Usman Bajwa remarked that while PIA is starting to recover, it still requires funds to grow and expand its fleet of 15 operational aircraft.
The adviser also clarified that no foreign government is currently interested in purchasing PIA, and the government plans to conduct international competitive bidding.
Ali emphasized that the financial soundness criteria have been tightened to ensure that only financially credible companies come forward. The potential buyer could be a scheduled airline.
When it comes to non-airline business bids for PIA, any interested company needs to show a minimum annual revenue of Rs200 billion, or about $715 million, based on their audited financials from December 2023 or later. Additionally, they must have generated at least Rs100 billion, or $360 million, each year over the past three years, according to the adviser.
Ali mentioned that there’s a new requirement in the financial criteria concerning liquidity and available cash. The bidding party must have Rs28 billion, or $100 million, readily available in cash or liquid assets, as stated by the adviser.
In another update, the potential buyer must be audited by a well-known international firm of chartered accountants or be on the SBP’s list of category ‘A’ or ‘B’ auditors.
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Q1. What changes have been made to the PIA privatization process?
The government has introduced stricter criteria for potential buyers to ensure only financially stable bidders are considered for PIA’s privatization. Provincial governments have been excluded from participating in the bidding process. The new criteria aim to attract credible and capable investors.
Q2. What is the deadline for expressing interest in acquiring PIA?
Interested parties can express their intent to acquire a majority stake in PIA until June 3. The updated criteria are designed to ensure only financially sound bidders participate.
Q3. Can provincial government entities participate in the bidding?
No, provincial government entities are excluded from the bidding process. However, non-state-owned entities like the Fauji Foundation, which are not affiliated with the government, are allowed to participate.
Q4. What are the financial criteria for PIA’s bidders?
Bidders need to meet strict financial requirements, such as having Rs8 billion in worth for the lead consortium member. Additionally, non-airline bidders must show a minimum annual revenue of Rs200 billion and at least Rs100 billion in each of the last three years.
Q5. Are there any changes to the pre-qualification requirements for consortium members?
Yes, consortiums can replace their lead member up to two weeks before the bidding date, as long as the replacement meets the pre-qualification criteria and the Request for Statement of Qualification guidelines.
Q6. What is the reference price for PIA’s privatization?
The reference price is expected to be higher than the previous Rs85.03 billion due to improvements in the airline’s balance sheet, the opening of European routes, and the settlement of GST.
