Govt declines proposal of banks’ consortium for Rs15bn loan to financially struggling PIA

The federal government has declined the stringent terms proposed by a consortium of six commercial banks for a new loan of Rs15 billion to the financially struggling Pakistan International Airlines (PIA).

A joint committee, formed to find a viable solution for the airline's financial woes until privatization, has also failed to reach an agreement.

According to government sources, the consortium of banks sought sovereign guarantees, a letter of comfort, two aircraft as collateral, and a waiver from the State Bank of Pakistan (SBP) for the Rs15 billion loan. The Ministry of Finance rejected these terms, citing concerns that they favored the banks more than protecting the government's interests.

Habib Bank Limited, National Bank of Pakistan, and Meezan Bank Limited collectively offered Rs9 billion, with Faysal Bank Limited, Bank of Punjab, and Askari Bank Limited contributing the remaining Rs6 billion.

The loan was intended to secure two confiscated aircraft of PIA and address other financial needs, with a repayment period not exceeding two years.

Caretaker Minister for Privatisation Fawad Hasan Fawad, tasked with selling PIA, has faced obstacles in the form of challenging loan conditions. The proposed terms included sovereign guarantees for half of the loan amount, acceptable to the finance ministry, a letter of comfort, two aircraft as collateral, and protection under UAE and English laws for the remaining half.

Despite offering the loan at Karachi Interbank Offered rates plus 1.5%, approximately 24% interest, the Ministry of Finance deemed the borrowing rates slightly higher.

The banks also requested a waiver from SBP's prudential regulations, which the finance ministry declined, expressing concerns about setting a precedent for other struggling enterprises.

The banks further demanded exclusive rights to PIA revenues from flights on UAE routes, seeking guarantees for regular flight operations and uninterrupted fuel supplies. Revenues from these flights would be directed to a dedicated account for principal and interest payments. The Rs15 billion loan cannot be restructured and must be repaid on time, as per the banks' conditions.

The joint technical committee, responsible for arranging the loan and restructuring PIA's old debt of Rs260 billion, failed to meet its deadline, resulting in its natural conclusion. The committee, chaired by Usman Bajwa, Secretary Privatization Commission, could not submit recommendations by the December 15th deadline.

Efforts to resolve the financial challenges faced by PIA and advance its privatization agenda remain in limbo as negotiations between the government and commercial banks continue.