Monday, November 13, 2017

Air India divestment: A small turbulence as Rothschild refuses to match EY’s fee

It’s a long flight for the government’s ambitious plan to sell strategic stake in Air India and it has already flown into a turbulence, albeit a minor one that it would want to put behind soon. It had to select two transaction advisors to advise it on the process but Rothschild, one of the two who were about to get the mandate, has decided against matching the price quoted by EY, the lowest bidder, according to two sources familiar with the development.

It is not certain yet if the government will go with only EY or initiate a new selection process.

The request for proposal, floated by finance ministry’s department of investment and public asset management, states that it will select up to two advisors to advise it on the sale of the state-owned airline. Thus, nothing stops the department from handing EY the entire mandate, assuming the accounting firm is willing to undertake the exercise alone for the price quoted by it.

Incidentally in this case, the government does not have the option of offering the third lowest bidder the option to match the lowest bid as only three financial bids were invited after the presentations to give quotes and KPMG, the third bidder, saw its quote disqualified as it quoted a minimum price for its services, one of the sources said. Bidding norms did not permit quoting of a minimum price.

The fee to be paid to the transaction advisors will be a percentage of the disinvestment proceeds reduced by the debt that will be transferred to a special purpose vehicle before the divestment. The fee will be split equally between the advisors. A special purpose vehicle will also be formed in which all the real estate and artefacts of the airline will be housed, according to a ministry official.
13/11/17 Dhirendra Tripathi/