Why the increase in the price of shares of PIA despite the loss?

The share price of Pakistan’s national airline PIA has recorded an increase of almost 650% in the last one year.

According to the Pakistan Stock Market database, on March 29, 2024, one share of PIA traded at Rs 31.54, its highest level in 20 years.

The previous highest price of PIA shares was seen on February 2, 2004 when it traded around Rs.25.

The recent surge in the company’s share price came after the caretaker federal government’s final decision to privatize it in February. After which investors are interested in PIA shares.

Stock exchange affairs expert and Secretary Exchange Companies of Pakistan Zafar Pracha while talking to Independent Urdu linked the increase in PIA’s share price to the final decision to privatize it.

Pracha said: ‘Pakistan has taken the final decision to privatize PIA. All political parties have agreed on this. The privatization of PIA was paved by the Special Investment Facilitation Council (SIFC) during the previous caretaker government and the role of Army Chief General Asim Munir in it.

He said that ‘it was also happy that the new federal government also maintained the decision to privatize PIA while continuing the same policy’.

Explaining the reasons for the increase in the price of PIA shares, he further said that ‘in view of the buyers of shares, it is a matter that this institution will start earning profit after privatization tomorrow. There are examples of this in the past as well like PTCL and all those banks which are running in profit till date after privatisation’.

“I strongly hope that after privatization there will come a time when PIA will not only start making profits but will also be in a position to pay heavy taxes to the government,” Pracha said.

In February 2024, the caretaker government headed by Prime Minister Anwar-ul-Haq Kakar took a major step to pave the way for the privatization of PIA, also regarding the outstanding debts of the company.

According to this move, the caretaker federal government has transferred a major part of PIA’s debts of about Rs 825 billion to a new company to facilitate its privatisation.

This company, which will be formed under the name of ‘PIA Holding Company’, will repay the debts of 650 billion rupees.

Chairman Exchange Companies Association of Pakistan Malik Bustan attributes the recent rise in PIA’s shares to the debt transfer.

Bostan told Independent Urdu: ‘PIA should have been sold long ago. But let’s be late, the hand has been taken.

Bostan said that ‘Allied Bank, Habib Bank, PTCL and other companies which were loss-making in the past during government ownership have now become profitable companies. These companies are giving separate benefits to their shareholders by earning profits and separately to the government in terms of taxes. A similar case is expected to happen with PIA after its privatisation’.

Talking about the sudden increase in the price of PIA shares, he gave the example of Suzuki Pakistan Company.

He said that ‘Some time ago, the price of one share of Suzuki Pakistan was 130 to 150 rupees. But as soon as Suzuki announced that it was going to buy back its shares from the market, the same share started selling up to Rs 900.

The purpose of this report is not to induce the reader to invest but to report the facts. Expert advice before investing in other investment schemes including stock exchange companies can reduce the risk of loss.