Banks back converting airline debt into bonds

Mumbai: A consortium of banks led by State Bank of India (SBI) would like to convert part of their existing loans to airlines like Air India, Kingfisher Airlines and Paramount into long term-term bonds, as part of a debt restructuring. Banks, however, are not keen to provide any significant interest rate waiver for the loans, which some airlines have found difficult to service.
The consortium had met recently to draft debt recast plans on the basis of strategies prepared by SBI Capital Markets. A senior Bank of Baroda (BoB) official said banks have offered to convert 15% of their existing loans into long-term bonds, which may be extended up to 12 years.
“The loan repayment tenure has also been extended to 9 years as against the earlier 6. We have also reduced interest rate to 11% from the earlier 12-12.5%. The net present value (NPV) of the sacrifice to be made by banks is about Rs 600 crore,” the official said.
SBI is leading a 13-bank consortium to restructure loans worth Rs 63,315 crore to the airline industry. Out of this, Rs 8,000 crore have become non-performing assets, accumulated during the global financial crisis of 2008-09 when airlines landed in the red. BoB has a total exposure of Rs 3,000 crore to airlines like Air India and Kingfisher.
09/11/10 Kumud Das, Sitanshu Swain/Financial Express

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Categories: Indian Aviation- In General Nov 2010