Friday, October 28, 2016

Banks could hold up to 40% stake in Air India: how the airline is deleveraging

This could mark a very important milestone in Air India’s turnaround. A consortium of 19 public sector banks is examining a proposal by the airline to convert Rs 10,000 crore worth of loans into equity. If this move actually happens, the PSU banks could together get to own about 40% stake in Air India. Obviously, these banks will also then get a say in how the airline is being run. As of now, the banks have held one meeting with officials of the airline and need to take an approval from their respective boards before this ambitious loan recast proposal moves forward.

An airline official confirmed the move, saying the consortium of banks includes SBI, Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, Syndicate Bank, Central Bank and Oriental Bank of Commerce. He also said that once the board of directors of each bank ratifies this proposal, the entire debt restructuring exercise will have to be approved by the Union Cabinet.

“The Cabinet will have to approve this scheme since it would mean arrivals of third party shareholders (PSU Banks) in Air India – the government has been the sole owner till now. The entire loan restructuring process could take up to six months. But once it is done, we can reduce our total annual interest payment outgo by about Rs 1,000 crore,” said this official. As of now, the total interest payment annually is Rs 4,000 crore, so this ambitious loan restructuring proposal could mean interest payment falls by a fourth from FY18.

Restructuring of loans is critical to Air India’s turnaround. But it also brings to mind a similar attempt to involve banks in another airline’s turnaround – remember the Kingfisher Airlines saga? This story speaks of how PSU banks converted Rs 650 crore worth of loans into equity at a premium in the now-defunct KFA and ended up owning about 23% of the airline’s equity.
27/10/16 Sindhu Bhattacharya/F.Business