Finance Ministry finalizes deal with banks for re-profiling PIA debt

The Finance Ministry has finalized the term sheet for re-profiling the debt of Pakistan International Airlines (PIA) with commercial banks, official sources said. Finance Ministry sources said the banks will issue No Objection Certificates (NOCs) this week and assets will transferred back under PIA ownership.

Banks will provide the loan at an interest rate of approximately 12 percent over 10 years.

Sources from within the Privatization Commission said, the agreement includes plans to sell up to 51 percent of PIA’s shares, while the government will retain ownership of the remaining 49 percent.

Funds generated from the PIA sale are earmarked for the airline’s rehabilitation. Prospective buyers of PIA will be required to purchase the majority stake (51 percent) in the airline.

A notable aspect of the agreement is the repayment mechanism: if PIA turns profitable, the loan will be repaid to the banks from dividends received. Also, the term sheet allows banks to issue Sukuks and conventional bonds, thus offering flexibility in financial instruments.

Meanwhile, the newly formed holding company responsible for the privatization of Pakistan International Airlines (PIA) has approved the restructuring of the airline’s Rs. 268 billion commercial debt. The holding company on Wednesday endorsed the restructuring term sheet. Tariq Bajwa, former Special Assistant to the Prime Minister, chaired the meeting, which convened urgently with directors attending virtually.

Banks have consented to extend the debt tenure to ten years and slash interest rates to a maximum of 12 percent. Should the government fail to privatize PIA within three years, banks retain the right to renegotiate terms, potentially reverting to prevailing interest rates in 2027.

The government plans to file a scheme of arrangement with the Securities and Exchange Commission of Pakistan (SECP) to be done with privatization by June 11th.

Bidding will start next week. Subsequently, PIA will split into two entities, with the holding company assuming the airline’s bad debts amounting to over Rs. 650 billion.

Annual interest payments of Rs. 32 billion to banks will be shouldered by the government, with debt settlement reliant on privatization proceeds or budget allocations.

The holding company cannot work on new loans for the flag carrier, with commercial banks holding priority rights over its assets. Through restructuring, the Rs. 268 billion debt will be the federal government’s responsibility.