Commercial Banks Hold Their Breath as PIA Defaults on Rs. 17 Billion

The federal government has opted not to absorb Pakistan International Airlines' (PIA) staggering Rs. 263 billion debt. Instead, it has proposed settling the dues with nearly a dozen domestic commercial banks through the privatization proceeds of the airline, reported Tribune. Sources have revealed that the finance ministry, backed by Prime Minister Anwarul Haq Kakar, has rejected the proposal to merge PIA's Rs. 263 billion debt into the public debt. Despite repeated attempts, the PM office has not provided comments on this decision. This move comes on the heels of the national airline defaulting on over Rs. 17 billion in debt repayments to seven commercial banks by early December, according to government sources. Of this Rs. 17 billion, Rs. 5.8 billion has been overdue for more than three months. Finance Minister Dr Shamshad Akhtar and Privatisation Minister Fawad Hasan Fawad held a series of meetings to address PIA's ongoing financial troubles. However, the finance minister rejected three key proposals for including PIA's debt in the public debt, arguing against leaving a negative legacy by incorporating a corporation's debt into public debt. Sources indicate that the privatization ministry revisited three options proposed by banks for debt restructuring, including zero-coupon instruments, a three-year Pakistan Investment Bond (PIB), or establishing a holding company to manage the debts. There is a prevailing view that the caretaker government cannot assume additional financial obligations. The finance ministry countered with a proposal linking PIA debt settlement to privatization proceeds, supporting PIA privatization without incurring additional liabilities. In September, PIA indicated its inability to repay debts to around 12 commercial banks, which has now escalated to Rs. 263 billion as of early December. The privatization ministry stressed that resolving PIA debt restructuring is linked with securing a new Rs. 15 billion loan for PIA, and a solution has to be found. PIA has failed to make over Rs. 17 billion in debt repayments to seven commercial banks, comprising Rs. 5.7 billion in principal repayment and Rs11.6 billion in interest costs. As of early December, PIA defaulted on payments to NBP, JS Bank, Bank Albaraka, HBL, Bank of Punjab, and a consortium of HBL and NBP. The Bank of Punjab holds the largest exposure, with over Rs. 56 billion in loans to PIA, followed by Askari Bank Limited with over Rs. 35 billion, JS Bank with Rs. 17.6 billion, NBP with Rs. 43 billion, Faysal Bank with Rs. 23 billion, Habib Bank Limited with Rs. 27.7 billion, and Bank Islami with over Rs. 10 billion. Albaraka Bank provided a Rs. 6.6 billion loan and Soneri Bank's exposure to PIA is Rs. 2 billion. A consortium of NBP and HBL has given a Rs25.2 billion loan to PIA, followed by a Rs. 12 billion loan from the Standard Chartered Bank and Masheraq Bank consortium. Sources said the finance ministry proposed settling domestic banks' debt against privatization proceeds, suggesting that over three-fourths of the privatization funds should go to these banks. Execution of this proposal would require relaxation of the statutory liquidity requirement (SLR) by the State Bank of Pakistan. The SLR is the proportion of a commercial bank's liabilities they are required to invest in approved securities and/or hold in the form of cash. Settlement against privatization dues would also necessitate no objection certificates from these commercial banks, said sources. If banks agree to the new proposal, their no-objection certificates should become part of the privatization transaction. Finance Ministry spokesperson Qamar Abbasi did not respond to questions regarding whether the finance ministry rejected the proposal to include PIA debt in the public debt. The interim government is actively pursuing the privatization of Pakistan's largest loss-making entity, amending the Privatisation Ordinance to prevent high courts from intervening in privatization disputes and issuing new rules for fast-track privatization. Lahore High Court is currently hearing a petition against the potential privatization of PIA, with the judge deferring the matter until January 17th. Reportedly, Justice Raheel Kamran Sheikh expressed concerns over limiting the courts' powers in privatization matters. The petitioner argued that the caretaker government had no jurisdiction over PIA due to its limited scope and authority. This week, the federal cabinet approved new Privatisation Appellate Tribunals for hearing privatization cases. Under the law, ongoing privatization cases being heard by high courts would be transferred to the tribunals. However, the provincial court has not yet dropped the case.

Source: Pro Pakistani