In order to give Pakistan International Airlines (PIA), a financially troubled airline, a fresh loan of Rs. 15 billion, the federal government rejected the rigorous criteria imposed by commercial banks.
Additionally, a joint committee unable to come up with a practical plan to continue operating the airline until it is privatized.
Conditions Set by Commercial Banks To Disburse Rs. 15 billion Loan For PIA
According to official sources, the group of six commercial banks proposed Rs. 15 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).
The banks also requested protection under the laws of the United Arab Emirates and England, and tied the loan distribution to an agreement on a settlement plan for old debts totaling Rs. 263 billion.
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.
Finance Ministry Rejected The Terms
When asked if the Ministry of Finance 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 Rs. 2 billion of the remaining Rs. 6 billion.
With a two-year maximum payback term, the loans requested in order to cover other funding demands and obtain control of two PIA-confiscated aircraft.
Fawad Hasan Fawad, the minister of privatization, is working to sell the biggest losing company in Pakistan.
Privatization of PIA
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 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 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 in order to cover their interest costs and the remaining half of the Rs. 7.5 billion.
Agreement With IMF
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.
At Karachi Interbank, the banks made the loan offer of Rs. 15 billion. Rates offered plus 1.5%, or approximately 24% interest.
The privatization ministry informed by the Ministry of Finance, meanwhile, that these borrowing rates were marginally higher.
To read our blog on “To advice on PIA privatization, Govt. opt British Firm EY,” click here.
