CCP approves acquisition of PIA by Holdco

CCP approves acquisition of PIA by Holdco

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

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

CCP announced the decision two days after the Privatization Commission (PC) board extended the deadline for submission of Expression of Interest (EOI) by investors by 15 days. The commission was forced to extend the date after the majority of the 10 parties who bought the bid documents did not submit them. No foreign airline has shown interest in PIA’s privatization so far, although three domestic private airlines have participated in the process.

CCP said as per the approved scheme, Holdco will acquire 100% shareholding in PIA and the non-core assets and non-core liabilities of the airline will also be transferred to Holdco. Holdco, a public limited company wholly owned by the government of Pakistan, was recently incorporated to take over the assets, liabilities and certain subsidiaries of PIA, including its business, property, rights and obligations domestically and internationally.

PIA, a publicly listed company, provides aviation and allied services such as engineering, handling, cargo, flight kitchens and training.

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

The CCP’s assessment concluded that the proposed transaction would not lead to dominance of Holdco in the relevant market after the transaction, therefore, the CCP allowed the merger in phase-I.

The competition watchdog said that the approval of the merger demonstrated the government’s commitment to advancing Pakistan’s economic recovery plan, particularly in attracting investment through the Special Investment Facilitation Council (SIFC).

Earlier, shareholders and creditors of PIACL approved the Scheme of Arrangement filed with the Securities and Exchange Commission of Pakistan (SECP). As part of the privatization process, the federal cabinet approved the legal separation and restructuring of PIACL, following which the Scheme of Arrangement was filed with the SECP in March. In the PIACL creditors’ meeting on 21 April 2024, the restructuring plan and Scheme of Arrangement were confirmed.

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

Foreign investors cannot purchase more than 50% of the shares under the Civil Aviation Act and the Air Services Agreement. So, they have to make an agreement with local investors to acquire majority shares.

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

All ancillary services including engineering, ground handling, cargo, flight kitchen and training, as core assets, have been retained in the main PIA for privatisation. But their treatment as core assets will depend on the willingness of investors to buy them. About Rs625 billion of liabilities are being transferred to the new holding company along with assets. These liabilities include commercial bank debt of Rs268 billion.

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

Commercial debt of Rs16 billion owed to foreign commercial banks is kept at PIA. Creditors As much as Rs64 billion to creditors, mainly lessors and fuel suppliers, was also kept in PIA and offered to buyers.Rs104 billion of assets related to fleet, employee deferred liabilities and trade payables are also kept in PIA.

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