PC asked to secure corporate guarantees, regulatory confirmations
ISLAMABAD: The federal government has further tightened conditions attached to the ongoing privatisation of Pakistan International Airlines Corporation Limited (PIACL), directing the Privatisation Commission (PC) to secure firm corporate guarantees and regulatory confirmations to safeguard the integrity of the transaction.
According to official documents and informed sources, the Cabinet Committee on Privatisation (CCoP), while approving key amendments in the transaction structure, has made it mandatory for Fatima Fertiliser Company Limited to provide an appropriate corporate guarantee ensuring that it will continue to remain a guarantor under the Share Purchase and Subscription Agreement (SPSA). In case its wholly owned subsidiary, Fatima Capital Limited, fails to meet its obligations, Fatima Fertiliser will be required to fulfil all such commitments without exception.
The decision is part of a broader government effort to ensure that the privatisation process — already considered one of the most complex transactions in recent years — remains legally and financially secure, particularly given the involvement of multiple investors and the evolving corporate arrangements within the bidding consortium.
The CCoP has also directed the Privatisation Commission to seek formal confirmation from the Securities and Exchange Commission of Pakistan (SECP) regarding the status of City Schools (Private) Limited, a member of the consortium. The company has recently been renamed City Group Holdings (Private) Limited, and the government has sought assurance that this change is limited to the nomenclature only, with no alteration to its shareholding structure, business model, or contractual obligations under the transaction.
In addition to these safeguards, the CCoP approved an updated and revised list of Pakistan Airports Authority (PAA) properties currently being utilised by PIACL. The number of such properties has been reduced from 236 to 230, reflecting adjustments made during the course of the transaction and operational rationalisation by the airline.
The privatisation of PIACL stems from a decision taken by the CCoP on December 30, 2025, when it approved the divestment of a 75 percent equity stake in PIA Holding Company Limited’s (PIAHCL) interest in PIACL. The transaction also includes a call option for the remaining 25 percent stake, allowing the investor consortium to potentially acquire full ownership at a later stage.
The successful bidder is a consortium led by Arif Habib Corporation Limited (AHCL), comprising Fatima Fertiliser Company Limited, Lake City Holdings (Private) Limited, City Schools (Private) Limited (now City Group Holdings), and AKD Group Holding (Private) Limited. The transaction was subsequently ratified by the federal cabinet, marking a significant milestone in the government’s privatisation agenda.
Following the approval, the Privatisation Commission issued a Letter of Acceptance to the consortium on January 2, 2026, requiring it to establish a Special Purpose Vehicle (SPV) and deposit an escrow amount of Rs3 billion. The consortium complied with these requirements by incorporating PIA Equity Limited as the SPV, which now serves as the purchaser entity for acquiring shares in PIACL.
Transaction documents, including the SPSA, Shareholders’ Agreement (SHA), and related legal instruments, were formally executed on January 29, 2026, between the consortium members, the SPV, and relevant government stakeholders, including the Privatisation Commission, Defence Division, PIAHCL, and PIACL.
Subsequently, the consortium sought approval for the inclusion of Fauji Fertiliser Company Limited (FFC) as a nominated person to acquire shareholding in the SPV. The federal cabinet approved this request in March 2026, allowing FFC to subscribe to approximately 33.99 percent of the paid-up capital of the purchaser entity.
This development added further depth to the consortium’s financial and operational capacity but also introduced additional complexities in terms of regulatory approvals and contractual obligations.
A major development occurred in April 2026, when Fatima Fertiliser informed the authorities that it intended to transfer its 5 percent shareholding in the SPV to its wholly owned subsidiary, Fatima Capital Limited. The move was aimed at restructuring its investment within the group while retaining overall control.
The proposal was reviewed by the transaction’s financial adviser, EY Consulting LLC (Dubai), and its legal subcontractor, Haidermota & Co. After detailed scrutiny, the advisers recommended allowing the transfer subject to strict conditions, including confirmation that Fatima Capital would remain a 100 percent subsidiary of Fatima Fertiliser until at least the second completion date of the transaction.
They also required that Fatima Fertiliser remain bound by all obligations under the SPSA, particularly the guarantee provisions, ensuring continuity of liability despite the internal restructuring.
The Pakistan Civil Aviation Authority (PCAA) also reviewed the proposal and issued a no-objection certificate, stating that Fatima Capital meets the eligibility criteria for shareholders, subject to compliance with applicable laws and completion of security clearance requirements.
Parallel to the shareholding transfer request, the consortium sought amendments to the Shareholders’ Agreement, particularly regarding the composition and functioning of the PIACL board.
Initially, the agreement envisaged reducing the board size from 11 to 8 members within 60 days of the first completion date. However, the investors later requested the removal of this provision, arguing that a larger board would better reflect shareholding proportions and governance needs.
After review, the financial adviser recommended maintaining a board of 11 directors, with 8 nominated by the investors and 3 by PIAHCL, thereby preserving the government’s 25 percent representation consistent with its residual shareholding.
Another significant amendment relates to the appointment of the Chief Executive Officer (CEO). Under the revised arrangement, the requirement for the CEO to be selected from among investor-nominated directors will cease after 60 business days from the effective date. Thereafter, the CEO may be appointed independently in accordance with applicable laws and will be treated as a deemed director.
These changes were approved by the board of the Privatisation Commission in its meetings held on May 20 and May 29, 2026, before being forwarded to the CCoP for final approval.
An important component of the transaction involves the assets being utilised by PIACL, particularly properties owned by the Pakistan Airports Authority. During the course of the review, it was noted that the airline had both acquired additional properties on lease and surrendered certain others.
To ensure accuracy and transparency, Schedule 11 of the SPSA — which lists these properties—was revised and updated. The final approved list includes 230 properties, down from the earlier figure of 236, reflecting operational adjustments and rationalisation measures.
After extensive deliberations, the CCoP approved the recommendations of the Privatisation Commission, subject to specific conditions aimed at safeguarding the transaction.
Foremost among these is the requirement for cross-corporate guarantees, ensuring that all obligations under the SPSA are fully backed by financially sound entities within the consortium.
The committee also emphasised that the spirit of the original transaction must remain intact, despite the proposed amendments and restructuring measures.
In addition, all relevant government entities—including the Ministry of Defence, PIAHCL, PIACL, and the Privatisation Commission—have been directed to take necessary actions for the implementation and execution of the approved changes.
The privatisation of PIACL is widely regarded as a critical test case for Pakistan’s broader privatisation programme, which aims to reduce the financial burden of loss-making state-owned enterprises and improve efficiency through private sector participation.
PIA has long been a drain on public finances, accumulating significant losses and liabilities over the years. The successful completion of its privatisation is expected to not only improve the airline’s operational performance but also send a positive signal to investors regarding Pakistan’s commitment to structural reforms.
However, the transaction has also faced challenges, including legal complexities, stakeholder concerns, and evolving corporate arrangements within the investor consortium. The government’s insistence on guarantees and regulatory confirmations reflects its cautious approach to managing these risks.—MUSHTAQ GHUMMAN
