The government’s first serious attempt to privatise the Pakistan International Airlines fell through on Thursday when the sole bidder offered the Rs10 billion final price against the minimum sale price of Rs85 billion.
Blue World City – a real estate developer – refused to match the government’s minimum sale price of Rs85.03 billion for the acquisition of 60% shares. The government televised the bidding process that did not last long due to participation of the single bidder in the process.
In a publicly televised event, Blue World City offered Rs10 billion for the acquisition of majority shares. The price was equal to only 12% of the minimum sale price of Rs85 billion that the Cabinet Committee on Privatisation had approved.
In dollar terms, the government’s minimum sale price was equal to $305 million but the bidder offered only $36 million.
Before opening of the bids, the Privatisation Commission board and the Cabinet Committee on Privatisation met separately. No government minister attended the bidding ceremony, which was graced by only two federal secretaries.
On the recommendation of the Privatisation Commission board, the Cabinet Committee on Privatisation approved the Rs85.03 billion price for the sale of 60% shares. As per the procedure, the government offered the sole bidder to match the price, which the Blue World City refused.
“We have considered the government price and decided to stand with our best price of Rs10 billion,” said Saad Nazir, the owner of Blue World City.
Blue World City was the only firm that stayed in the process out of the six parties that had been pre-qualified for the due-diligence. The five parties opted out after they refused to accept the government’s conditions on tax liabilities, guaranteed investment, increasing the number of airplanes and retaining the employees.
The parties that did not submit financial bids were Arif Habib Corporation Limited, Fly Jinnah, Younus Brothers, Holdings Private Limited, Pak Ethanol Private and Air Blue.
The government had not expected that Blue World City would reach to the stage of submitting financial bid. It was the first serious attempt by the government to privatise the fourth biggest loss-making entity, which ended at the bid opening stage. In its attempt to make the deal lucrative, the government had also carved out roughly Rs625 billion PIA debt and parked it in a holding company.
The PIA Company was left with only Rs202 billion liabilities and roughly Rs163 billion assets, most of those assessed at book value. However, the bidders were not even ready to take tax and contingent liabilities.
The failed attempt to privatise PIA may also have implications for the government’s other privatisation agenda.
Blue World City placed the bids for the sake of the national flag and it did not care about the poor financial numbers and the business model, said Seham Raza, the Chief Operating Officer (COO) of the Blue World after submitting the bid in the afternoon.
I wished there would have been healthy competition and feel sad that all other bidders have pulled out, said Raza.
The government had offered 51% to 100% stake in the airline. But subsequently it decided to sell 60% shares.
The governments had not accepted the bidders’ demand for reduction in duties and taxes and gave a 10-year waiver from any new tax. He said according to another condition, the new buyers would have to reduce the average age of the existing fleet from 17 years to 10 years in the next five years. This would require the induction of new aircraft, said the secretary.
The government had proposed that the buyer would be required to implement the investment plan by pumping $500 million to $700 million into PIA. But the bidders did not agree and opted out.
The government had proposed that the buyers would retain the existing employees for two to three years and their financial terms could not be changed. Finally, it reduced the retention period to one-and-a-half years only.
PIA cannot be operationally sustainable until new investment is made and the pending liabilities are also cleared, Privatisation Commission secretary Usman Bajwa said last month.
Blue World City had a consortium that included Blue World Aviation and IRIS Communication Limited.
