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ISLAMABAD—Pakistan expects to complete a series of large privatization transactions this spring, the country's finance minister said, in moves that would raise badly needed foreign exchange and dispel growing concerns about the slow pace of reforms.
In addition to billions of dollars in revenue from state asset sales, the government of Prime Minister Nawaz Sharif, which came to power in June, is also looking for as much as $5 billion from auctioning off third- and fourth-generation mobile-phone licenses, Finance Minister Ishaq Dar told The Wall Street Journal. Another plan in the works is to split into two companies the loss-making flag carrier, Pakistan International Airlines Corp. PIAA.KA +0.37% , ahead of selling a stake, he said.
Mr. Sharif inherited a troubled economy, plagued by an energy crisis that left industries without power, and a deteriorating security situation. Since then, the government took major steps to cut subsidies and eliminate debt in the electricity sector, reducing blackouts. It also negotiated a $6.6 billion deal with the International Monetary Fund, staving off default.
The economy has since shown signs of reviving, even though growth barely keeps up with the birthrate. The IMF this month acknowledged the tentative turnaround, especially in the large-scale manufacturing and services sectors, and raised its forecast for gross domestic product growth this fiscal year to 3.1% from the previous estimate of 2.8%. The government is much more optimistic, expecting growth of some 4.4%.
"I am quite happy and satisfied that things are moving the way they should be. We are right on track," Mr. Dar said. "We are pursuing and taking the most difficult decisions, a few of which are politically unpopular. But, to fix the economy, those stabilizing measures as well as structural reforms were necessary."
In part because of interference by the country's activist judiciary, which questioned a number of government appointments, reforms have been relatively slow so far, especially on the privatization front, many critics say. Soon after taking office, Mr. Sharif's government pledged to sell stakes in 31 state-owned companies. Many of these, however, are still in the process of selecting new management teams.
"It's all entangled in this sense of going cautiously, which in turn has adverse impact as far as economic expectations are concerned," said Ishrat Hussain, the director of the Institute of Business Administration in Karachi and a former governor of Pakistan's central bank. "The investors don't see anything happening of a dynamic, vibrant nature. If they see a few privatization transactions successfully completed, they will bring in their money and invest. They are waiting for privatization to take place before they go for greenfield projects."
That is precisely what Mr. Dar says will happen before the current fiscal year ends in June. First on the block, he said in the Journal interview, would be government stakes in petroleum companies and in lenders such as Habib Bank Ltd. HBL.KA -0.62% , Allied Bank Ltd. ABL.KA -0.11% and United Bank Ltd. UBL.KA +0.15% The government expects to raise between 200 billion rupees ($1.9 billion) and 250 billion rupees through these sales via capital markets—some for hard currency as global depository receipts listed on foreign exchanges. "We will have this process on the fast track," Mr. Dar said.
These asset sales could bolster the Karachi Stock Exchange, which—while soaring in recent month—still isn't taken seriously by many global investors because of its low volume of transactions and the resulting susceptibility to speculators.
The sales of government stakes "will encourage more participants," said Jahangir Siddiqui, chairman of JS Bank Ltd. JSBL.KA -2.30% and one of Pakistan's leading businessmen. "Today, only a small float is available. If you need to have true price discovery, you need to have a float available. Otherwise it won't be possible for serious players to come to the market."
In parallel to the capital markets sales, the government also is planning to restructure Pakistan International Airlines, which has routes around the world, including to North America. PIA has already put out a tender to lease new aircraft, to improve its capacity and save fuel with more-efficient planes.
As part of the restructuring, PIA is likely to be split into two companies, with a holding group retaining some 250 billion rupees in debt and excess personnel, and a "new" PIA holding the lucrative landing rights and the new aircraft. Then, the government plans to sell a 26% stake in that "new" PIA to a strategic partner, Mr. Dar said.
"This will have more attraction to potential investors: they will enter into a clean transaction and not be evaluating and calculating the legacy and the bad negative numbers of a poor balance sheet," he said.
Privatizations have always been controversial in Pakistan, with opposition parties and the judiciary often stepping in to block these deals. Some of the country's leading businesspeople caution that the government may be too ambitious.
"The government is very keen on privatization, but I'm of the opinion that it will lose a lot of political capital on it," said Hussain Dawood, a tycoon with interests in the fertilizers, chemicals and power industries. "There is going to be a political backlash because all sorts of people have vested interests."
This backlash, however, isn't necessarily insurmountable. "When there are privatizations, you can't satisfy all the participants," said Mr. Siddiqui of JS Bank. "But if the will is there to privatize, and the intention is to do it in a transparent manner, they should not be afraid of criticism."
In addition to privatizations, the government is planning to raise money this fiscal year through the long-delayed sale of 3G and 4G mobile spectrum. Pakistan is the only major country in the region that still doesn't have 3G service—overtaken even by war-torn Afghanistan to the north.
The government has yet to decide whether to auction off just 3G, or 3G and 4G spectrum together, Mr. Dar said. Selling just 3G licenses could raise between $1.2 billion to $2 billion, and bundling them with 4G spectrum could generate between $4 billion and $5 billion, Mr. Dar estimated. He added that the government is considering issuing more licenses on top of the four cellular providers that currently operate in Pakistan.
"We want new entrants to compete," he said, "to give better service and to provide more money to the auction."
Pakistan Set to Close Large Privatization Deals in Spring - WSJ.com
In addition to billions of dollars in revenue from state asset sales, the government of Prime Minister Nawaz Sharif, which came to power in June, is also looking for as much as $5 billion from auctioning off third- and fourth-generation mobile-phone licenses, Finance Minister Ishaq Dar told The Wall Street Journal. Another plan in the works is to split into two companies the loss-making flag carrier, Pakistan International Airlines Corp. PIAA.KA +0.37% , ahead of selling a stake, he said.
Mr. Sharif inherited a troubled economy, plagued by an energy crisis that left industries without power, and a deteriorating security situation. Since then, the government took major steps to cut subsidies and eliminate debt in the electricity sector, reducing blackouts. It also negotiated a $6.6 billion deal with the International Monetary Fund, staving off default.
The economy has since shown signs of reviving, even though growth barely keeps up with the birthrate. The IMF this month acknowledged the tentative turnaround, especially in the large-scale manufacturing and services sectors, and raised its forecast for gross domestic product growth this fiscal year to 3.1% from the previous estimate of 2.8%. The government is much more optimistic, expecting growth of some 4.4%.
"I am quite happy and satisfied that things are moving the way they should be. We are right on track," Mr. Dar said. "We are pursuing and taking the most difficult decisions, a few of which are politically unpopular. But, to fix the economy, those stabilizing measures as well as structural reforms were necessary."
In part because of interference by the country's activist judiciary, which questioned a number of government appointments, reforms have been relatively slow so far, especially on the privatization front, many critics say. Soon after taking office, Mr. Sharif's government pledged to sell stakes in 31 state-owned companies. Many of these, however, are still in the process of selecting new management teams.
"It's all entangled in this sense of going cautiously, which in turn has adverse impact as far as economic expectations are concerned," said Ishrat Hussain, the director of the Institute of Business Administration in Karachi and a former governor of Pakistan's central bank. "The investors don't see anything happening of a dynamic, vibrant nature. If they see a few privatization transactions successfully completed, they will bring in their money and invest. They are waiting for privatization to take place before they go for greenfield projects."
That is precisely what Mr. Dar says will happen before the current fiscal year ends in June. First on the block, he said in the Journal interview, would be government stakes in petroleum companies and in lenders such as Habib Bank Ltd. HBL.KA -0.62% , Allied Bank Ltd. ABL.KA -0.11% and United Bank Ltd. UBL.KA +0.15% The government expects to raise between 200 billion rupees ($1.9 billion) and 250 billion rupees through these sales via capital markets—some for hard currency as global depository receipts listed on foreign exchanges. "We will have this process on the fast track," Mr. Dar said.
These asset sales could bolster the Karachi Stock Exchange, which—while soaring in recent month—still isn't taken seriously by many global investors because of its low volume of transactions and the resulting susceptibility to speculators.
The sales of government stakes "will encourage more participants," said Jahangir Siddiqui, chairman of JS Bank Ltd. JSBL.KA -2.30% and one of Pakistan's leading businessmen. "Today, only a small float is available. If you need to have true price discovery, you need to have a float available. Otherwise it won't be possible for serious players to come to the market."
In parallel to the capital markets sales, the government also is planning to restructure Pakistan International Airlines, which has routes around the world, including to North America. PIA has already put out a tender to lease new aircraft, to improve its capacity and save fuel with more-efficient planes.
As part of the restructuring, PIA is likely to be split into two companies, with a holding group retaining some 250 billion rupees in debt and excess personnel, and a "new" PIA holding the lucrative landing rights and the new aircraft. Then, the government plans to sell a 26% stake in that "new" PIA to a strategic partner, Mr. Dar said.
"This will have more attraction to potential investors: they will enter into a clean transaction and not be evaluating and calculating the legacy and the bad negative numbers of a poor balance sheet," he said.
Privatizations have always been controversial in Pakistan, with opposition parties and the judiciary often stepping in to block these deals. Some of the country's leading businesspeople caution that the government may be too ambitious.
"The government is very keen on privatization, but I'm of the opinion that it will lose a lot of political capital on it," said Hussain Dawood, a tycoon with interests in the fertilizers, chemicals and power industries. "There is going to be a political backlash because all sorts of people have vested interests."
This backlash, however, isn't necessarily insurmountable. "When there are privatizations, you can't satisfy all the participants," said Mr. Siddiqui of JS Bank. "But if the will is there to privatize, and the intention is to do it in a transparent manner, they should not be afraid of criticism."
In addition to privatizations, the government is planning to raise money this fiscal year through the long-delayed sale of 3G and 4G mobile spectrum. Pakistan is the only major country in the region that still doesn't have 3G service—overtaken even by war-torn Afghanistan to the north.
The government has yet to decide whether to auction off just 3G, or 3G and 4G spectrum together, Mr. Dar said. Selling just 3G licenses could raise between $1.2 billion to $2 billion, and bundling them with 4G spectrum could generate between $4 billion and $5 billion, Mr. Dar estimated. He added that the government is considering issuing more licenses on top of the four cellular providers that currently operate in Pakistan.
"We want new entrants to compete," he said, "to give better service and to provide more money to the auction."
Pakistan Set to Close Large Privatization Deals in Spring - WSJ.com
