On the 19th July it was announced that a consortium led by Dubai Islamic Bank had been awarded the role of financial advisors for the privatization of Pakistan International Airlines (PIA). The position will be formalized during the next Board of Privatization meeting on the 22nd July, and forms the spearhead of a raft of privatizations that are expected to transform Pakistan’s economic landscape.
The upcoming privatizations are part of an ongoing program under which the government of Pakistan has agreed to divest up to 32 state-owned entities, beginning with the sale of 26% of PIA shares. This is planned to follow the same model as the successful privatization of Pakistan Telecommunication, of which 26% was sold to Abu Dhabi-based Etisalat Telecommunications and a further 12% to the general public in 2006 — notably, without transferring the firm’s liabilities from the government to the buyers. Although the privatization originally caused widespread concern, it is generally agreed to have been successful, and the firm has retained a leading position in Pakistan’s telecommunications sector.
The massive privatization program is supported by an agreement with the International Monetary Fund (IMF) for a US$6.7 billion loan in return for the sale of 32 state-owned entities by 2017. The program will reportedly operate under a three-tiered strategy consisting of 11 capital market transactions, 17 private sector partnerships (including PIA and Pakistan Steel Mills) and the restructuring of three major government-owned firms. The government is hoping to achieve upwards of PKR175 billion (US$1.77 billion) from the sales — including PKR50 billion (US$506.32 million) from selling 20% of Habib Bank, PKR15 billion (US$151.89 million) from the sale of 10% of United Bank Ltd and PKR10 billion (US$101.26 million) from the sale of 10% of Allied Bank. The state plans to use 90% of the proceeds for debt retirement with the remaining 10% allocated to poverty alleviation programs.
The privatization program in Pakistan has also been strongly supported by the Islamic Corporation for the Development of the Private Sector (ICD), which has provided financial services for the process. Speaking to the CEO of the ICD, Khaled Al-Aboodi, at the annual Islamic Development Bank (IDB) meeting in Jeddah last month, Pakistan’s finance minister Mohammad Ishaq Dar noted his gratitude for the assistance and noted that he wished to strengthen Pakistan’s relationship with the IDB.
Khaled also confirmed that the ICD plans to continue to support Pakistan’s economic development through the financing of Shariah compliant private sector projects. Following up on this promise, the ICD recently made a bid in partnership with Karachi-based Burj Bank (in which it owns 34%) to be appointed as financial advisor for Pakistan’s upcoming US$1 billion sovereign Sukuk, which should be confirmed this month. — LM