CCP approves Holdco’s takeover of PIA

ISLAMABAD:

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

In its order, the Competition Commission of Pakistan (CCP) said the acquisition of PIA Corporation by PIA Holding Company would not have a material impact on the market. It described the nature of the holding company’s business as real estate, which would own PIA’s liabilities, specific business properties, rights and obligations, both within and outside Pakistan.

The CCP announced the decision two days after the Privatization Commission (PC) board extended the date for filing Expressions of Interest (EOI) by investors by 15 days. The committee was forced to extend the date after a majority of the 10 parties that had purchased bidding documents failed to submit them. No foreign airline has shown interest in privatizing PIA so far, although three domestic private airlines have participated in the process.

The CCP said that under the approved scheme, Holdco would acquire 100% stake in PIA and the airline’s non-core assets and non-core liabilities would also be transferred to Holdco. Holdco, a public limited company wholly owned by the government of Pakistan, was recently established to acquire specific assets, liabilities and subsidiaries of PIA, including its operations, properties, rights and liabilities, both domestically and internationally.

PIA, a publicly traded company, provides aviation and related services such as engineering, handling, cargo, flight kitchen and training.

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

The CCP’s assessment concluded that the proposed post-transaction transaction would not lead to Holdco’s dominance in the relevant market. Therefore, the CCP authorized the phase I merger.

The competition watchdog said the approval of the merger demonstrated its commitment to advancing the government of Pakistan’s economic revival plan, especially in attracting investments 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 segregation and restructuring of PIACL, following which the Scheme of Arrangements was filed with the SECP in March. At a meeting of PIACL’s creditors on April 21, 2024, the restructuring plan and Scheme of Arrangements were approved.

The Privatization Commission emphasized that the restructuring would deliver a significantly ‘debt-free’ PIA, with better cash flow, focused on aviation and providing a basis for future growth for potential investors, while ensuring value creation for shareholders. Under the segregation plan, the government transferred about Rs625 billion to the holding company before selling a 51% to 100% stake in PIA. It has also approved the transfer of employees from the Precision Engineering Complex to the holding company.

Foreign investors cannot purchase more than 50% of the shares under the Civil Aviation Act and Air Service Agreements. So, they would have to make an arrangement with local investors for acquiring majority shares.

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

All support services, including engineering, ground handling, cargo, flight kitchen and training, as core activities, have been brought into the main PIA for privatization. But their treatment as core assets will depend on investors’ willingness to buy them. About Rs625 billion in liabilities will be transferred to the new holding company along with assets. These liabilities include a commercial bank debt of Rs268 billion.

A debt of Rs173 billion is to be paid to the federal government and advances from subsidiaries are transferred to the holding company. Similarly, all liabilities of Rs144 billion of Civil Aviation Authority (CAA), Pakistan State Oil (PSO) and National Insurance Corporation Limited (NICL) are transferred to the holding company.

A commercial debt of Rs16 billion to foreign commercial banks is kept in PIA. Debts of Rs64 billion due to creditors, mainly landlords and fuel suppliers, are also held in PIA and offered to buyers.

Operating liabilities of Rs104 billion related to the fleet, deferred liabilities of employees and trade payables are also held in PIA.

Published in The Express Tribune, May 5^e2024.

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