Government rejects banks’ proposal for a new Rs15 billion loan to
PIA
The federal government has rejected the proposed terms from a
consortium of six commercial banks for a new Rs15 billion loan to financially
support Pakistan International Airlines (PIA). The loan was intended to address
PIA's financial struggles and secure two confiscated aircraft, with a repayment
period not exceeding two years.
The consortium, consisting of Habib Bank Limited, National Bank of
Pakistan, and Meezan Bank Limited (contributing Rs9 billion), along with Faysal
Bank Limited, Bank of Punjab, and Askari Bank Limited (contributing the
remaining Rs6 billion), sought stringent conditions, including sovereign
guarantees, a letter of comfort, two aircraft as collateral, and a waiver from
the State Bank of Pakistan (SBP). The Ministry of Finance rejected these terms,
expressing concerns that they favored the banks over protecting the
government's interests.
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Caretaker Minister for Privatisation Fawad Hasan Fawad, tasked
with PIA's privatization, faced challenges due to demanding loan conditions.
The proposed terms included sovereign guarantees for half of the loan amount
(acceptable to the finance ministry), a letter of comfort, two aircraft as
collateral, and protection under UAE and English laws for the remaining half.
Despite offering the loan at Karachi Interbank Offered rates plus
1.5% (approximately 24% interest), the Ministry of Finance deemed the borrowing
rates slightly higher. The banks' request for a waiver from SBP's prudential
regulations was also declined, citing concerns about setting a precedent for
struggling enterprises.
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The banks additionally sought exclusive rights to PIA revenues
from flights on UAE routes, guarantees for regular flight operations, and
uninterrupted fuel supplies. The Ministry of Finance expressed concerns about
potential precedent-setting and the inflexibility of the Rs15 billion loan's
conditions, emphasizing that it must be repaid on time.
The joint technical committee, responsible for arranging the loan
and restructuring PIA's old debt of Rs260 billion, failed to meet its December
15th deadline, leading to its natural conclusion. Chaired by Usman Bajwa,
Secretary Privatization Commission, the committee could not submit
recommendations, leaving efforts to address PIA's financial challenges and
advance privatization negotiations in limbo.
Source: Profit Pakistan