Eight companies, including three among top 20 financial advisory firms, have responded to Pakistan’s request for a proposal to prepare plans for privatisation and bifurcation of the Pakistan International Airlines into good and bad entities.
Till expiry of the date, the Privatisation Commission received technical and financial proposals from eight financial advisory firms, said Minister for Privatisation, Fawad Hasan Fawad, on Monday.
The interest by the companies would boost the government’s privatisation efforts. There were apprehensions that financial advisers may not show keen interest due to Pakistan’s poor track record of first hiring advisers and then abandoning the transactions, including that of PIA.
Pakistan had directly sent documents to top 25 firms using the Table of League mechanism. But only three of them responded. The firms had been requested to submit proposals for creating a transaction structure for the sale of a majority stake in PIA.
Out of eight, five bids were received from those firms that had already applied against the Aviation Ministry-managed process for hiring of financial advisors for restructuring of the PIA. But the caretaker cabinet had annulled the Aviation Ministry’s process and decided to hire a single financial advisory consortium for both restructuring and privatisation of the airline.
Out of eight, three are from the top 20 firms in terms of value of the transactions. Rothschild & Co — having handled nearly $56 billion transactions, is the top 12th financial advisory firm. The Houlihan Lokey stands at 16th number in a top 25 League Table of the financial advisors. Houlihan Lokey has handled nearly $14 billion transactions, followed by Ernest and Young — the 17th on the ranking and has handled about $13 billion transactions.
None of the top 10 firms sent proposals for acquiring the business of making privatisation, restructuring and post privatisation debt restructuring of PIA.
Instead of following the international competitive bidding process, the government decided to directly send requests for proposal documents to top 25 firms.
In addition to the three firms, five other firms have also responded to the Ministry of Privatization’s request for financial advisers. The firms were already part of the competitive process that the Aviation Ministry had initiated for hiring of financial advisors for restructuring of PIA and its division into two entities.
They include Alvarez and Marsal, which has submitted documents as part of a consortium with Rothschild and Co.
The Ernst & Young also participated in the Aviation Ministry-run process. The other entities include Tiagra advisory and investment Services, the Investor Advisory Services (IAS), Cruise Aerospace advisory services HLV and Ijaz Tabasum advisery services and Ceabury Securities.
Fawad said that it was the decision of the federal cabinet to also send the request for proposals documents to those firms that were part of the PIA restructuring financial advisory services.
On October 6, the cabinet had approved the invocation of an emergency regulation to directly hire financial advisors for PIA privatisation, 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 advisor 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 took a month to close the process of receiving the proposals –a time that is equal to the international competitive bidding process. The Commission had sent documents on October 16th and gave 21 days for a response.
The privatisations minister said that in the next two days the technical bids would be opened and he would welcome the firms, if they want to join the process through video links.
PIA incurred losses of Rs86 billion last year, and this year’s estimate is a staggering Rs153 billion, making privatisation or grounding 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.
One Pakistani airline has already expressed interest in acquiring PIA and formally communicated with the privatisation commission. PIA’s financial situation has deteriorated significantly and the management is already in the process of domestic debt restructuring. Without debt restructuring, PIA requires Rs13 billion per month to meet debt payments and other expenses.
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The sources said that the privatisation ministry was in negotiations with the banks for arranging Rs15 billion in new loans backed by PIA’s movable assets. The PIA also wanted to borrow another Rs9 billion by utilizing the available fiscal space against sovereign guarantees.
The process of borrowing has been slowed down due to the presence of the International Monetary Fund in the town coupled with the banks’ reluctance to give fresh loans when PIA is already in the process of debt restructuring.
The interim government aims to appoint the financial adviser by mid-November and receive a preliminary report on the segregation of core PIA from non-core PIA, making it ready for bidding by the end of January.
Typically, the privatisation process, from hiring a financial advisor for transaction structure preparation to holding an open bidding, takes over a year.
The general elections have been announced for February 8th and it is now unlikely that the interim government would be able to privatize PIA in the next three months.