Eight global companies offer PIA privatization services

Islamabad:

Eight firms, including three among the top 20 financial advisory firms, responded to Pakistan’s request for proposal to prepare plans for the privatization and bifurcation of Pakistan International Airlines into good and bad entities.

By the deadline, the Privatization Commission received technical and financial proposals from eight financial consulting firms, Privatization Minister Fawad Hassan Fawad said on Monday.

The companies’ interest will boost the government’s privatization efforts. There were concerns that financial advisers might not show strong interest because of Pakistan’s poor track record of first hiring advisers and then exiting deals, including PIA.

Pakistan had directly sent documents to top 25 companies using the Table of League mechanism. But only three of them responded. The companies have been asked to submit proposals to set up a transaction structure for the sale of majority stake in PIA.

Out of the eight, five bids were received from the companies that had already applied against the process run by the Civil Aviation Ministry to hire financial consultants for the restructuring of PIA. But the service cabinet had overruled the Aviation Ministry’s process and decided to hire a single financial services advisory consortium for both restructuring and privatization of the airline.

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Of the eight, three are among the top 20 companies in terms of transaction value. Rothschild & Co — having processed nearly $56 billion in transactions, is the 12th leading financial advisory firm. Houlihan Lokey is ranked 16th in a top 25 League Table of financial advisors. Houlihan Lokey has handled nearly $14 billion in transactions, followed by Ernest and Young — 17th in the rankings and handling approximately $13 billion in transactions.

None of the top 10 companies sent proposals to acquire the privatization, restructuring and debt restructuring business after the privatization of PIA.

Instead of following the international competitive bidding process, the government decided to send requests for proposal documents directly to 25 leading companies.

Apart from the three companies, five other companies also responded to the Ministry of Privatization’s request for financial advisers. The companies were already part of the competitive process initiated by the Aviation Ministry to hire financial consultants to restructure PIA and split it into two entities.

They include Alvarez and Marsal, which has filed as part of a joint venture with Rothschild and Co.

Ernst & Young was also involved in the Air Ministry process. The other entities include Tiagra Advisory and Investment Services, Investor Advisory Services (IAS), Cruise Aerospace HLV Advisory and Ijaz Tabasum Advisory and Ceabury Securities.

Fawad said it was the decision of the federal cabinet to also send request for proposals documents to those companies that participated in PIA’s financial restructuring consultancy.

On October 6, the cabinet had approved the invocation of an emergency regulation to immediately hire financial advisers to privatize PIA, with the aim of preparing the loss-making entity for sale within the next four months.

The cabinet had decided to hire an international financial consultant by directly inviting proposals from the top 25 global financial firms, bypassing the need for open bids through advertisements. The purpose was to save time.

However, the Commission still needed a month to close the process for receiving proposals – a time equivalent to the international competitive bidding process. The Commission had sent documents on October 16 and given 21 days to respond.

The privatization minister said that in the next two days the technical bids will be opened and he will welcome companies if they want to join the process through video links.

PIA suffered losses of Rs86 billion last year, and this year’s estimate is a staggering Rs153 billion, making privatization or landing of the airline a necessity. The government is considering selling at least 51% of the shares, along with management control, of PIA, preferably to a local investor.

A Pakistani airline has already expressed interest in acquiring PIA and has formally approached the privatization commission. PIA’s financial situation has deteriorated significantly and management is already in the process of restructuring internal debt. Without debt restructuring, PIA requires Rs 13 billion a month to cover debt payments and other expenses.

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The sources said the privatization ministry was in talks with banks to arrange fresh loans of Rs 15 billion backed by movable assets of PIA. PIA also wanted to borrow another Rs 9 billion using available fiscal space against government guarantees.

The lending process has been slowed by the presence of the International Monetary Fund in the city combined with the reluctance of banks to provide new loans when PIA is already in the process of debt restructuring.

The caretaker government intends to appoint the financial adviser by mid-November and receive a preliminary report on the separation of the core PIA from the non-core PIA, making it ready for bidding by the end of January.

Typically, the privatization process, from hiring a financial advisor to prepare the transaction structure to conducting an open offer, takes more than a year.

General elections have been called for February 8 and it is now unlikely that the caretaker government will be able to privatize PIA in the next three months.