KARACHI/ISLAMABAD (The Thursday Times) — The Government of Pakistan has officially designated a consortium led by global consultancy firm Ernst & Young (EY), with its international headquarters in London with a Pakistani base at Karachi, as its financial advisor for the partial privatisation of the national carrier, Pakistan International Airlines (PIA). 40% of PIA has been earmarked for sale. This decision was confirmed by the Privatisation Commission Board (PCB) of the Ministry of Privatisation following a meeting in Islamabad on November 10, 2023.
The evaluation committee appointed by the PCB identified the Ernst & Young-led consortium as the top-ranked bidder, according to a statement released post-meeting. Ernst & Young is now tasked with developing a transaction structure to facilitate the partial privatisation of PIA.
Prior to this meeting, Pakistan’s Privatisation Minister Fawad Hasan Fawad had informed the press that eight groups, including notable names like Rothschild & Co and Houlihan Lokey, had submitted bids for the advisory role. The government hopes to finalise an agreement with Ernst & Young promptly, expecting a preliminary report by January 2024.
Documentation reviewed by ch-aviation indicates that a bid from a consortium including Houlihan Lokey was deemed non-compliant. The winning Ernst & Young group comprises several entities, including Bauer Aviation Agency and Knight Frank. The second-ranked consortium was led by Alvaraz & Marshall, and the third by Seabury International Corporation Finance.
The interim government’s strategy involves separating PIA’s debt and establishing a public-private partnership, with a foreign airline potentially acquiring a 40% stake in PIA. This plan was facilitated by legislative amendments in August, allowing for the partial privatisation.
Regarding reports about a recent meeting between government officials and the International Monetary Fund (IMF), the IMF praised Pakistan’s progress towards economic recovery. This meeting was part of the IMF’s loan program, under which Pakistan received US$1.2 billion as the first tranche in July, aimed at averting a sovereign debt default. The IMF has expressed concerns about the delay in updating the evaluation of loss-making state-owned enterprises (SOEs) and emphasised the importance of enacting the new SOE law to ensure that SOE operations are commercially oriented. This law also strengthens the oversight and ownership arrangements of SOEs.
Pakistan has a total of 212 state-owned entities, 85 of which are commercial. These SOEs have been recording net losses since the financial year 2014-15, with the cumulative total reaching 286 billion rupees by FY18. The IMF has called for the development of a new ownership policy and the amendment of several SOE-dedicated Acts, along with the operationalisation of a Central Monitoring Unit within the Ministry of Finance for better oversight of SOEs.
The privatisation of PIA would also include its associated assets, including the historically iconic Roosevelt Hotel in New York. The interim federal government of Pakistan had previously accelerated the process of selling the Roosevelt Hotel, inviting proposals for the appointment of a financial advisor to facilitate the auction. The privatisation commission is also seeking details about the PIA-owned Sofitel Scribe Hotel in Paris, indicating a broader strategy to divest from non-core assets. PIA’s assets are collectively valued at 176 billion rupees and include properties in various countries. Financial obligations owing from debts from businesses like these have severely burdened PIA, necessitating annual payments of 122 billion rupees, most of which were incurred to cover losses dating back to 2003.
The caretaker Privatisation Minister expressed confidence in advancing PIA’s privatisation by early 2024.