Arif Habib Consortium places highest bid of Rs135b; The government receives only 10 billion rupees, the rest to be reinvested in the airline
The government is selling its 75% stake in PIA to the Arif Habib-led consortium for Rs135 billion. Photo: screenshot
ISLAMABAD:
The government on Tuesday sold its 75% stake in Pakistan International Airlines (PIA) for Rs 10.1 billion in cash to the consortium led by business tycoon Arif Habib, marking the completion of the first major privatization transaction in two decades by getting rid of the white elephant.
The consortium comprising Arif Habib, Fawad Ahmed Mukhtar, Gohar Ejaz and Aqeel Karim Dhedhi – renowned businessmen of Pakistan – placed the highest bid of Rs 135 billion for the 75 per cent stake in the 13th round of open auction. It beat another cash-rich consortium, led by Muhammad Ali Tabba.
Air Blue was disqualified from the open tender after bidding 26.5 billion rupees, almost three-quarters less than the minimum price of 100 billion rupees.
The government had set a very low minimum price, even compared to the last failed attempt when it asked for Rs 85 billion for 60 per cent shares when the entity had negative equity.
Of the 135 billion rupees, the government will get 10 billion rupees ($36 million) and the remaining amount will be invested in Pakistan International Airlines (PIA) by the winning bidder, Muhammad Ali, adviser to the prime minister on privatization, said after the auction.
This is PIA’s second attempted sale in more than a year and the first successful deal since 2005, when the government sold K Electric, the country’s largest electricity distribution company.
Prime Minister Shehbaz Sharif had wanted the PIA to be sold for Rs 200 billion.
At the meeting of the Cabinet Committee on Privatization, which approved the minimum sale price, one of the ministers advocated selling PIA at any cost to get rid of the hemorrhaging entity.
The government withdrew Rs 670 billion from PIA’s books, which will now be funded by taxpayers. For the current financial year, the government has estimated the debt servicing cost at Rs 35 billion, which will continue for at least six more years.
From the start, the Arif Habib group adopted an aggressive approach compared to its only competitor, who was initially conservative and who added Rs 250 million to each of the first eight rounds of bidding.
After the eighth round, the Muhammad Ali Tabba group requested a half-hour break to conduct internal consultations before finally “congratulating Arif Habib” when he increased the price to 135 billion rupees.
To make the second attempt successful, the government also removed the 18 per cent sales tax on aircraft leasing, provided a tax credit of Rs 36 billion to bidders and extended the deadline for clearing the current debts of over Rs 33 billion of the Federal Board of Revenue (FBR) and the Civil Aviation Authority (CAA).
Bidders valued the company’s entire shares at Rs180 billion, or $640 million.
The privatization adviser said the winner would have to deposit two-thirds of the bid money within three months and the remaining amount within a year. He said the government would not transfer shares equivalent to one-third of the price until the successful consortium had paid all dues.
Muhammad Ali said the successful bidder will have three months to express interest in acquiring the remaining 25% shares of PIA at a 12% premium to the offer price. The advisor indicated that the successful bidder would have the possibility of calling on two new partners, including an international airline.
There is a good chance that Fauji Fertilizer will become the fifth partner in the consortium, according to officials privy to the development.
The government’s wish is that after four years, the PIA will have 40 functional aircraft and the number of passengers will increase from 4 million to seven million per year, Muhammad Ali said.
PIA employees should have no fear as all good employees will be retained and paid, said winner Arif Habib. He said current employees would be given confidence and expected to lead the airline.
The government also separated the medical obligations of PIA employees and placed them in the PIA holding company, which are now borne by taxpayers.
The government prohibited the new owner from laying off an employee for a maximum period of one year. The winner was also given enough time to sort out the responsibilities of the FBR and CAA.
We plan to add 18 more aircraft and, depending on the traffic load, our plan is to increase the total fleet number to 64, Habib said. The PIA currently flies only 18 aircraft out of a fleet of 34.
Muhammad Ali said PIA’s debts had started piling up again and there was a risk that after clearing over Rs 650 billion from the balance sheet, the amount could rise alarmingly again.
The Economic Coordination Committee (ECC) of the Cabinet on Tuesday approved 2 billion rupees, or over $7 million, to clear tax debts and make principal repayment of the loan of the Roosevelt Hotel in New York, which is owned by PIA Investment Limited.
The success of the PIA privatization operation could pave the way for the sale of other entities.
The sale of PIA would also boost the confidence of local investors who have been reluctant to invest further in Pakistan due to an unfavorable business environment.
The PIA currently has fewer than 6,900 permanent employees in addition to 2,900 contract workers.
It enjoys privileged access to many of the world’s busiest airports, including Heathrow and London. The national airline has 170 pair slots in various global destinations including Gulf countries, North America and Europe.
“I have always maintained that whichever consortium achieves success, Pakistan will be the ultimate winner and today’s result fully justifies this belief,” Prime Minister Shehbaz Sharif said in his congratulatory message.
The Prime Minister said the strong participation of our leading business groups and some of Pakistan’s most seasoned and respected investors is a powerful vote of confidence in our economy and its future.
