PSO wants a loan-to-equity swap against its debt. How well thought out is the plan?

With circular debt ballooning out of control, out of the box thinking is being used to address it. Sadly, it won’t work

Circular debt. 

It’s one of those terms everyone seems to use when talking about problems in Pakistan’s energy sector, and there aren’t a lot of solutions out there. The roots of the problem can be traced back to the way energy is provided in the country which has only compounded the problem further. The issue needs to be addressed with targeted reforms that need to be put into place. With a lack of initiative and political will, no such reforms are being implemented.

With the issue of circular debt so deep, there was an interesting idea pitched recently from within Pakistan State Oil (PSO), regarding how they could manage their rising circular debt problem. Of course, PSO managing its circular debt would just be one part of the puzzle, but it is worth looking at the proposition. The suggestion is for PSO to swap its debt for equity. Essentially, PSO wants to pass off its debt to another company and offer that company shares in return. Easy peasy, right? 

Not quite. While it is an idea (we’ll give it that), it would be like rearranging the deck chairs on the Titanic while the country is careening towards the iceberg. Profit takes a look at what exactly is the proposed solution that is being promoted, and could it be effective?

 

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Zain Naeem
Zain Naeem
Zain is a business journalist at Profit, and can be reached at [email protected]

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