Pakistan’s caretaker government and banks have come to an agreement to restructure the debt of Pakistan International Airlines (PIA), which has been facing financial difficulties. The plan involves the government utilizing the proceeds from the sale of PIA to make principal payments. In return, banks will accept a 10-year debt rollover with a 12% annual interest rate. This arrangement will result in annual interest payments of PKR 32.2 billion, surpassing the outstanding debt of PKR 268 billion. These payments will continue for a decade, totaling PKR 572 billion. The Ministry of Finance will seek approval from the International Monetary Fund, while banks will seek approval from their respective boards of directors.
The decision to restructure PIA’s debt comes after the Pakistan finance ministry stopped making interest payments on the debt in March 2023. This prompted discussions around privatization of the airline, but concerns emerged about the potential delay privatization might face due to debt restructuring alone. However, the agreement reached by the government and banks regarding debt restructuring and transfer of debt ownership to the finance ministry has addressed PIA’s primary concern. This move eliminates the airline’s largest monthly charge from its balance sheet.
The Privatisation Minister, Fawad Hasan Fawad, had previously insisted that PIA’s debt becomes part of public debt. Finance Secretary, Imdad Ullah Bosal, and Finance Minister Dr Shamshad Akhtar eventually agreed to the proposal, albeit with some reservations. The finance ministry, the privatization ministry, and representatives of nine commercial banks are involved in rearranging PIA’s debt of PKR 268 billion, including principal debt of PKR 250 billion, over a 10-year period. The government has committed to annually pay back the debt at a 12% interest rate.
It should be noted that PIA’s total outstanding debt currently stands at PKR 825 billion. In order to file a scheme of arrangement with the Securities and Exchange Commission of Pakistan (SECP), the privatization ministry and PIA must obtain no objection certificates from the Civil Aviation Authority and the Federal Board of Revenue. The Interim Finance Minister previously suggested transferring PIA’s PKR 825 billion debt to a holding company, as there were uncertainties about how to address this burden.
Under the agreement, banks have agreed to issue a No Objection Certificate (NOC) to the SECP, facilitating the transfer of their PKR 268 billion debt to the holding company while surrendering their claim on PIA’s assets.
