As Islamabad presses forward with its long-awaited agenda to privatize the Pakistan International Airlines (PIA), sources within the finance ministry reveal that the government has finalized a term sheet agreement with commercial banks, securing a substantial loan of approximately Rs270 billion.
The initiative to privatize the PIA, a chronically loss-making state-owned enterprise (SOE), aligns with the International Monetary Fund’s (IMF) recommendation to divest such entities in a bid to alleviate the strain on government resources and curb the burgeoning budget deficit in Pakistan.
In light of this, an integral component of the privatization endeavor involves addressing the PIA’s financial commitments. Following negotiations, a tentative agreement has been reached to reprofile the debt, extending the loan repayment period to 10 years at an interest rate of 12 per cent.
The term “term sheet” delineates a preliminary, non-binding accord outlining the fundamental terms for investment. It serves as a foundational document upon which more comprehensive and legally binding agreements are structured.
Concurrently, “debt reprofiling,” also known as loan reprofiling, denotes a form of debt restructuring wherein the repayment duration is elongated while maintaining the overall debt value unaltered.
Insights from the Privatization Commission indicate that 51 per cent of PIA shares will be made available to interested parties, with the government retaining a 49 per cent stake.
Regarding the utilization of proceeds from privatization, sources disclose intentions to channel the funds towards revitalizing the national carrier. Furthermore, the majority shareholder acquiring the 51 per cent stake is expected to match the investment amount for this purpose.
Upon the attainment of profitability by PIA, dividends will be allocated towards loan repayment, as outlined in the term sheet. Additionally, the agreement entails the issuance of sukuk, Islamic bonds, and conventional bonds to the eight participating commercial banks.
