Prospective PIA bid: Arif Habib says amount should go into core company as capital

KARACHI: Arif Habib, chief executive of the group that is one of the six entities which pre-qualified for the privatisation process of Pakistan International Airlines (PIA), said that the government should let the bid amount from the potential buyer go into the core company, strengthening its financials and selling shares at a high price when it is revived.

“The pre-qualification list of six bidders has been announced and I expect they (the government) will soon open the data room so that all of the six prospective bidders will do the due diligence and prepare the bid. There are four things which I think the government will have to give in the policy decision, which will increase interest in bidding and its value,” said the founder and CEO of Arif Habib Corporation Limited while talking to the media on Wednesday.

“The core holding company equity is negative Rs55 billion. Its liabilities are Rs200 billion and the liabilities are to be paid mainly to Civil Aviation Authority (CAA), PSO and leasing companies. I think it can be renegotiated and tenure restructured with the leasing companies. But the government has to tell how much time will the new buyer get from CAA and PSO.”

Habib said that if the two government entities ask for quick clearance, there would be an immediate need for a big amount of money for the new investor, which will be difficult to arrange.

“Likewise, we have advised that the proceeds of the bid amount should go into the core company as capital. It should not be taken away by the seller. In other words, sellers should not sell their shares. They should invite new investors. New investors put liquidity in the company and dilute the government. We popularly call it the Allied Bank Model. It also happened with the Allied Bank.”

This will reduce the requirement for the potential buyer and will be able to keep its liquidity intact.

“The bidders will try to bid high because the money will go into the company making it financially healthy, where half the partners will be the government. When the revival happens, the government sells its shares at a high price and not at a low price presently.”

There should also be clarity about the routes where PIA planes can land around the world. There should also be clarity about agreement with the employees.

“Clarity on these important four matters will increase bidding interest and its price.”

Arif Habib Corporation along with Air Blue, Blue World City, Fly Jinnah, Pak Ethanol Consortium, and YB Holdings Consortium are included in the list of entities that are pre-qualified in the process of Pakistan International Airlines (PIA) privatisation. These entities would be able to participate in PIA’s bidding.

Sees 200bps cut in key policy rate in upcoming MPC meeting

Looking at inflation numbers and estimates, Habib said he sees the key policy rate being cut by 200 basis points in the next Monetary Policy Committee meeting on June 10.

He added that the biggest beneficiary of the drop in interest rates will be the government itself as it will see debt servicing coming down.

“This will all have a positive impact on the economy,” he said.

Habib also sketched a positive outlook of the economy and said that things were moving in the right direction.

He added that the FBR has achieved the revenue collection target in 11 months with an increase of 35% as compared to previous year.

Taxation on Real Estate

Arif Habib, who was pitching the Naya Nazimabad apartment project at the press briefing, was of the view that there is ample taxation on real estate, but there may be space for rationalising valuation of properties.

According to data provided by the company, the real estate sector has the highest – 15.25% average tax to revenue ratio as compared to other industries.

He added that the government discourages buying/selling of plots while encouraging developed properties, which actually helps growth of the economy.

“There should be no questioning for first time buyers of property of up to Rs50 million because a lot of people don’t have proper money trail when they buy their first house.”

According to the working of applicable taxes on real estate by the Arif Habib Group, there are 17% taxes on buying/selling of plots. It is higher – 20.25% — on development of land or construction of buildings.

He said any increase or new tax on real estate will make buying properties expensive. He added that he believes policymakers will also consider market development.

Budget expectations

The business magnate doesn’t expect any new taxation on buying and selling of stocks, saying he trusts the wisdom of policymakers. It is because there are already a lot of taxes – capital gain tax 15%, super tax 10% and corporate tax of 29%.

Arif Habib said if tax is increased, it will not only turn away foreign investors but also domestic investors as well.

He also said that he does not see massive depreciation of the rupee, but a 4-8% fall in the coming fiscal year, which he suggested should be gradual.

Copyright Business Recorder, 2024