PIA's debt segregation plan gets approved

February 19, 2024 (MLN): In a noteworthy development, the segregation plan of Pakistan International Airlines Corporation Limited (PSX: PIAA) has been approved, according to the sources. 

The International Monetary Fund (IMF) also agreed with the debt segregation plan. 

Later, the Privatization Minister presented this proposal in the Cabinet meeting for further approval.

The caretaker government is taking decisive steps to prepare for the privatization of the airline under the incoming administration, aimed at resolving its significant debt burden, which remains a top concern for stakeholders

Earlier this month, the Federal Cabinet directed the Aviation Division and PIAA to undertake the required corporate and regulatory actions to implement the said Scheme of Arrangement.

To recall, the Federal Cabinet in its meeting held on August 09, 2023, had approved the listing of PIAA in the Active Privatization Program. 

Subsequently, in line with the Federal Cabinet's approval dated October 1, 2023, the Privatization Commission appointed Financial Advisory Consortium led by EY Consulting LLC, Dubai, as Financial Advisor for the divestment of PIACL.

The Financial Advisor, after conducting due diligence, proposed a Legal Segregation Plan for PIAA and drafted a Scheme of Arrangement (SOA). 

At present, PIA owes Rs281 billion to commercial banks and faces an interest rate of 23.5% on these loans.

However, lately, Commercial banks proposed a fixed annual interest rate of 16.6% for deferring the recoveries of their Rs281bn loans to the national carrier over five years but the Finance Minister Dr Shamshad Akhtar, who has countered with a proposal of approximately 10% interest based on the banks’ actual cost of borrowing, rejected their proposal.

News reports indicated that banks’ reluctance to issue no-objection certificates for transferring their debt to a new holding company remained a major hindrance.

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