PIA holding company approves Rs268bn debt restructuring plan

The board of the Pakistan International Airline Holding Company has sanctioned a plan to restructure the airline’s commercial debt amounting to Rs268 billion.

This decision, made in the board’s first meeting led by former Special Assistant to the Prime Minister, Tariq Bajwa, involves integrating the airline’s debt into the nation’s public debt, thereby transferring the financial burden to the taxpayers.

The restructuring agreement, negotiated by the Ministry of Finance with commercial banks, entails extending the debt repayment period to ten years and reducing the interest rate to a maximum of 12% from the current rate of approximately 23.5%.

The agreement also specifies that if the government does not privatize PIA within three years, the banks will have the authority to renegotiate the terms to match the interest rates of 2027.

Following the board’s approval, the government plans to present the arrangement scheme to the Securities and Exchange Commission of Pakistan (SECP), with an aim to privatize PIA by June 11.

The proposed privatization process could start as early as the following week.

The restructuring will lead to the bifurcation of PIA, with the newly formed holding company assuming the airline’s financial liabilities, including commercial and government loans, amounting to over Rs650 billion of PIA’s Rs825 billion total debt.

This move is intended to prepare PIA for privatization by presenting it as a debt-free entity to potential investors.

The government will finance the annual interest payments, estimated at Rs32 billion, through the national budget.

The holding company is tasked solely with managing PIA’s liabilities and is restricted from acquiring new loans.

Banks, in turn, are granted priority claims over the assets of the holding company.

This financial maneuver places the Rs268 billion debt, with an additional interest of Rs18 billion, under the purview of the federal government.

The arrangement predicts that the banks will accumulate over Rs300 billion from interest payments over the next decade, which exceeds the principal debt amount.

An exception in the restructuring plan is the treatment of a foreign currency loan of $88 million from the National Bank of Pakistan (NBP) and Habib Bank Limited (HBL), which remains in foreign currency terms, posing potential fiscal risks due to interest and exchange rate fluctuations.

Part of this loan, amounting to $53 million, will be transferred to the holding company and repaid over five years without restructuring.

The government has ensured that the banks have sovereign guarantees and exclusive rights to the current and future assets of the holding company, excluding specific exclusions like the Roosevelt Hotel.

The agreement also includes a clause that allows banks to renegotiate the deal if PIA is not privatized within the specified three-year period and to refuse any future borrowing proposals from the holding company.