CCP clears Holdco’s takeover of PIA

Islamabad:

The antitrust watchdog on Saturday announced the approval of the Scheme of Arrangements for the acquisition of 100% of the shares in Pakistan International Airlines Corporation Limited (PIACL) by a new company named PIA Holding Company Limited (Holdco).

In its order, the Competition Commission of Pakistan (CCP) said that the acquisition of PIA Corporation by PIA Holding Company would not have a material impact on the market. He described the nature of the holding company’s business as an immovable property, to which PIA’s liabilities, specific business property, rights and obligations within and outside Pakistan would belong.

The CCP announced the decision two days after the Privatization Commission (PC) board extended the date for submission of Expression of Interest (EOI) by investors by 15 days. The commission was forced to extend the date after a majority of the 10 parties that bought tender documents did not submit them. No foreign airline has shown interest in privatizing PIA so far, though three domestic private airlines have joined the process.

The central counterparty said that under the approved plan, Holdco would acquire 100% stake in PIA and non-core assets and non-core liabilities of the airline would also be transferred to Holdco. Holdco, a public limited company wholly owned by the Government of Pakistan, was recently incorporated to take over certain assets, liabilities and subsidiaries of PIA, including its operations, property, rights and obligations both domestically and internationally level.

PIA, a listed company, provides aviation and allied services including engineering, handling, cargo, flight kitchen and training.

The relevant market identified in this case is the real estate market in Pakistan, as PIA owns real estate across the country with homogenous competitive conditions, the CCP said. He added that PIA’s core aviation operations and related services will remain with the company and will not be transferred to Holdco. These core activities will be privatized.

The CCP’s assessment concluded that the proposed transaction would not result in Holdco dominating the relevant market after the transaction, therefore, the CCP approved the Phase I merger.

The competition watchdog said its approval of the merger demonstrates a commitment to advance the government of Pakistan’s economic revitalization plan, particularly in attracting investment through the Special Investment Facilitation Council (SIFC).

Earlier, the shareholders and creditors of PIACL approved the Scheme of Arrangements filed with the Securities and Exchange Commission of Pakistan (SECP). As part of the privatization process, the federal cabinet approved the legal separation and restructuring of PIACL, after which the Scheme of Arrangement was filed with the SECP in March. At a meeting of PIACL’s creditors on 21 April 2024, the restructuring plan and Scheme of Arrangement were approved.

The Privatization Commission emphasized that the restructuring will deliver a significantly “light” PIA, with better cash flows, focused on aviation and providing a basis for future growth to potential investors, while ensuring value creation for shareholders. Under the demerger plan, the government has transferred around Rs 625 billion to the holding company before selling 51% to 100% stake in PIA. It also approved the transfer of employees of the Precision Engineering Group to the holding company.

Foreign investors cannot buy more than 50% shares under the Civil Aviation Act and Air Services Agreements. Thus, they would have to enter into an agreement with local investors to acquire majority shares.

Precision Engineering Complex, Pakistan International Airlines Investment Limited which owns Roosevelt Hotel and Scribe Hotel and some properties have been treated as non-core assets and transferred to the holding company.

All ancillary services, including engineering, ground handling, cargo, flight galley and training, as core assets, have been retained in the parent PIA for privatisation. But treating them as core assets will depend on the willingness of investors to buy them. About Rs 625 billion of the liabilities are transferred to the new holding company along with the assets. These liabilities include commercial bank debt of Rs 268 billion.

A debt of Rs 173 billion is due to be paid to the federal government and advances from subsidiaries are transferred to the holding company. Similarly, all Rs 144 billion liabilities of Civil Aviation Authority (CAA), Pakistan State Oil (PSO) and National Insurance Corporation Limited (NICL) are transferred to the holding company.

A trade debt of Rs 16 billion owed to foreign commercial banks is held by PIA. Dues of Rs 64 billion to creditors, mainly lessors and fuel suppliers, are also retained by PIA and offered to buyers.

Operational liabilities of Rs 104 billion related to fleet, employee deferred liabilities and commercial liabilities are also retained at PIA.

Published in The Express Tribune, May 5^u2024.

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