January 11, 2024 (MLN): After residing in a dull spot for an extended period, Pakistan International Airlines Corp (PSX: PIAA) has finally emerged into the spotlight as the market embraces the government's intensive divestment plans for the national carrier.
These recent developments, jointly have significantly boosted the entity’s scrip, showcasing a renewed investor interest in its shares.
In just four trading sessions of the ongoing week, the company’s share price has witnessed a surge of 35.2%, currently trading at Rs10.99 with an upper cap in today’s session.
Lately, the Privatization Commission (PC) board has reached the decision to sell a minimum of 51% stake in PIA through a balance sheet adjustment, as per media reports.
Accordingly, around 75% of the Rs825 billion debt of the national carrier will be transferred to a new entity and the funds from privatization and property sales would cover this amount.
However, a constraint that may arise in the approval of this transaction is that the biding laws, Pakistan Civil Aviation Authority Act, and Air Service Agreements restrict the sale of majority stakes in government-owned entities to foreign entities.
Thereby, the government is exploring the option of government-to-government sale.
It is crucial to note that the Financial Advisors on Monday presented a proposal for the legal segregation of the PIAC aimed at the separation of core aviation business and assets for eventual divestment of core aviation services in the first instance.
As per the proposal, basic engineering services and international routes would be part of the core assets offered for sale to buyers. Whereas, the non-core assets will be retained in a Holdco structure for subsequent divestment in separate structures and transactions.
Apart from the ongoing divestment talks in the market, a positive development has also emerged for PIA as it successfully inducted one of its two A320 aircraft into its fleet, which was previously entangled in a payment dispute in Malaysia.
With respect to this matter, the advisor further disclosed that the second aircraft would also be inducted into the PIA fleet in about next two weeks.
These quick actions being taken by the Privatization Commission are attributed to the ongoing initiative by the government to reduce the presence of State-Owned Enterprises (SOEs) within the public sector while simultaneously enhancing their competitiveness and accountability.
The optimal performance of SOEs is the requisite crucial factor for the government's medium to long-term macroeconomic resilience and growth prospects.
However, these SOEs continue to report losses due to a lack of autonomy, external interference, inappropriate boards, and weak management.
According to the details made available by the Ministry of Finance, the national carrier ranked as the third highest loss-making SOE as it reported a loss of Rs98bn in FY22.
Moreover, due to the company’s weak financial position, it faced the cancellation of numerous flights in the last quarter of 2023 as it failed to repay debt to Pakistan State Oil (PSX: PSO).
Despite making substantial strides in settling dues to the oil company and resuming fuel supply, the national carrier continues to grapple with substantial debt.
Looking ahead, privatization emerges as a critical avenue for PIA's progress.
Copyright Mettis Link News
Posted on:2024-01-11T15:44:42+05:00
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