AI debt recast to cripple banks: Finance ministry

New Delhi: The finance ministry has raised a red flag over restructuring of over Rs 21,000 crore of Air India's debt and said that unsecured loans could not be part of the recast plan as banks would be "crippled" by a hit of around Rs 10,000 crore.
In a note to the civil aviation ministry on Wednesday, the finance ministry said the capital adequacy ratio of banks would be eroded as restructured loans have to be put in the higher risk category with the requirement to set aside more funds to cover for potential default. Apart from provisions of Rs 9,600 crore, banks also stand to lose as they have agreed to lower interest rate on loans to National Aviation Company of India (Nacil) from 12.5% to 11%.
The package for Nacil, which operates under the Air India brand, also entails conversion of 60% of the loans into term loans that have to be repaid over 15 years. The remaining 40% will be converted into cumulative redeemable preference shares (CRPS) with a dividend of 8%. The preference shares are part of a company's share capital but come with a fixed dividend and the comfort that the amount will be repaid in case a company is wound up.
09/12/11 Sidhartha/Times of India

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Categories: Air India Dec 2011