The federal government has refused to accept the harsh conditions set by commercial banks for providing a new loan of Rs15 billion to the struggling Pakistan International Airlines (PIA). A joint committee has also failed to find a workable solution to keep the airline flying until its privatization.
According to official sources, the group of six commercial banks proposed Rs15 billion in fresh loans to PIA in exchange for sovereign guarantees, a letter of comfort, two aircraft as collateral, and a waiver from the State Bank of Pakistan (SBP).
United Arab Emirates
The banks also requested protection under the laws of the United Arab Emirates and England and tied the loan disbursement to an agreement on a settlement plan for Rs 263 billion in outstanding obligations. According to sources within the finance ministry, the conditions were unacceptable to the ministry since they went above and beyond what was necessary to safeguard the banks’ interests in exchange for granting a loan secured by sovereign guarantees.
When asked if the Ministry of Finance had rejected the terms offered by the commercial banks, Qamar Abbasi, the ministry’s spokesperson, remained silent.
According to the sources, PIA received offers of Rs 9 billion from Habib Bank Limited, National Bank of Pakistan, and Meezan Bank Limited, each of which contributed Rs 3 billion. Faysal Bank Limited, Bank of Punjab, and Askari Bank Limited each contributed Rs2 billion of the remaining Rs6 billion. With a two-year maximum payback term, the loans were requested to cover other funding demands and obtain control of two PIA-confiscated aircraft.
the Minister of Privatization
Fawad Hasan Fawad, the minister of privatization, is working to sell the biggest losing company in Pakistan. Thus far, he has overseen the enactment of a Presidential Ordinance that terminates the constitutional jurisdiction of high courts over matters of privatization. Additionally, he has authorized new regulations that exempt an entity from the pro-competition privatization statute, thereby facilitating negotiations under a different Act of Parliament.
The finance minister has approved the banks’ proposal to lend half of the Rs. 15 billion amount against state guarantees because there is budgetary room. According to sources, the banks requested two airplanes as collateral and a letter of comfort from the Ministry of Finance to pay the other half of the Rs7.5 billion and pay for its interest.
According to sources, the Ministry of Finance rejected the requirement to prolong the letter of comfort, claiming that doing so would violate the terms of the agreement with the International Monetary Fund (IMF) and provide a way for other businesses that cause losses to enter the market.
PC board approves rules to accelerate PIA privatization
The banks offered the Rs15 billion loan at Karachi Interbank Offered rates plus 1.5%, translating to around 24% interest. However, the Ministry of Finance told the privatization ministry that these borrowing rates were slightly higher.
According to sources, the banks have also asked the Ministry of Finance to arrange a waiver from prudential regulations from the SBP, as no provision will be accepted against a Rs15 billion loan in case of a default. However, the Ministry of Finance refused to play the mediator role between the banks and the SBP and stated that it may create the wrong precedent for other loss-making enterprises.
Additionally, the banks sought sole ownership of the PIA earnings from flights conducted on UAE routes. They demanded assurances that the PIA and the government would guarantee the uninterrupted fuel supply and regular operation of these flights.
Banks state that Earnings from flights
Another requirement issued by the banks states that earnings from flights to the United Arab Emirates will be sent directly to a new account for principal and interest payments. Additionally, the banks insisted that the laws of England and Wales, Pakistan, and the United Arab Emirates apply to the lending.
The banks insist that the Rs. 15 billion be paid in full and cannot be adjusted in the future. According to sources, the loan won’t be paid out until the debt restructuring plan has been approved by current creditors and the Aviation Division, PIA, and privatization ministry have been notified by the finance ministry to renegotiate the terms. PIA has already received loans totaling Rs220 billion from five of these six banks.
The committee’s third extension to provide recommendations on three important terms of reference expired, and since it was unable to come up with a workable solution, the committee has temporarily come to an end.
The technical committee was established by Akhtar on October 23 and is chaired by Usman Bajwa, the Secretary of the Privatisation Commission. The committee was assigned the responsibility of obtaining a fresh loan of Rs. 15 billion for PIA and reorganizing the previous debt of Rs. 260 billion.
None of the goals set forward by the Bajwa-led group have been accomplished. The committee was expected to submit recommendations by December 15th, but its deadline passed last week.
Usman Bajwa did not respond to questions about whether any recommendations were submitted to the finance minister who had set up the committee.