The failure of the attempted disinvestment of Air India that did not result in any takers and has since been “shelved”, was publicly attributed to the condition that the government of India (GoI) would continue to hold 24 percent stake in the airline after disinvestment.
For now the plan for disinvestment in Air India has presently been “shelved” and the GoI is considering injecting additional Rs 2000 crores of the taxpayers money into the airline. It is clearly unsustainable and sooner than later a disinvestment of Air India will necessarily have to be undertaken. However, the devil is clearly lurking in the details and till such time as it is unravelled, potential investors will continue to be spooked.
It is clear that the GoI cannot totally exit Air India Limited. The option of offering 100 percent exit will not result in success. This is because the dismal financials of Air India necessitates the continued role of the government and it cannot overnight exit the framework.
For starters all of the aircraft loans and working capital loans have been given to Air India on the basis of GoI guarantees. If there is a 100 percent divestment by the government, Air India Limited will overnight cease to be eligible for being supported by such guarantees, since the General Finance Rules (GFR), 2017 which govern the issuance of GoI guarantees, completely prohibit issuance of government guarantees for the private sector.
If exemptions are indeed worked out through amendments to the GFR rules to ensure the continuation of the guarantees, then this it could well result in the first privately held company whose entire working capital loans and primary asset financing is guaranteed by the GoI.
This, however, is not advisable, particularly since a bulk of the GoI guarantees relate to external commercial borrowings and are exposed to foreign exchange fluctuation risk.
To get an idea of the issue, one needs only to see the fact the GoI guarantees for Air India currently support: (i) Rs 13,600 crore of NCDs, (ii) Rs 7445.7 crore of future financial leases for aircraft, which includes guarantee towards 21 Boeing 787-8 Dreamliner planes, (iii) Rs 18273.8 crores of financial leases for existing aircraft fleet and equipment, (iv) Rs 3714.2 crore of loans for aircraft, and (v) Rs 1155.2 crore short term/working capital loan. This aggregates to a total of Rs 44,189 crores (approx.) of loan facilities of Air India Limited being based on GoI guarantees.
The guaranteed loans include Rs 13,600 crores of NCDs issued at an interest rate ranging from 9.08 percent to 10.05 percent, which are to be redeemed between March 2020 to December 2031 with no Debenture Redemption Reserve having been created due to the absence of earned profits by the Company.
25/06/18 Piyush Joshi/CNBC TV18
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For now the plan for disinvestment in Air India has presently been “shelved” and the GoI is considering injecting additional Rs 2000 crores of the taxpayers money into the airline. It is clearly unsustainable and sooner than later a disinvestment of Air India will necessarily have to be undertaken. However, the devil is clearly lurking in the details and till such time as it is unravelled, potential investors will continue to be spooked.
It is clear that the GoI cannot totally exit Air India Limited. The option of offering 100 percent exit will not result in success. This is because the dismal financials of Air India necessitates the continued role of the government and it cannot overnight exit the framework.
For starters all of the aircraft loans and working capital loans have been given to Air India on the basis of GoI guarantees. If there is a 100 percent divestment by the government, Air India Limited will overnight cease to be eligible for being supported by such guarantees, since the General Finance Rules (GFR), 2017 which govern the issuance of GoI guarantees, completely prohibit issuance of government guarantees for the private sector.
If exemptions are indeed worked out through amendments to the GFR rules to ensure the continuation of the guarantees, then this it could well result in the first privately held company whose entire working capital loans and primary asset financing is guaranteed by the GoI.
This, however, is not advisable, particularly since a bulk of the GoI guarantees relate to external commercial borrowings and are exposed to foreign exchange fluctuation risk.
To get an idea of the issue, one needs only to see the fact the GoI guarantees for Air India currently support: (i) Rs 13,600 crore of NCDs, (ii) Rs 7445.7 crore of future financial leases for aircraft, which includes guarantee towards 21 Boeing 787-8 Dreamliner planes, (iii) Rs 18273.8 crores of financial leases for existing aircraft fleet and equipment, (iv) Rs 3714.2 crore of loans for aircraft, and (v) Rs 1155.2 crore short term/working capital loan. This aggregates to a total of Rs 44,189 crores (approx.) of loan facilities of Air India Limited being based on GoI guarantees.
The guaranteed loans include Rs 13,600 crores of NCDs issued at an interest rate ranging from 9.08 percent to 10.05 percent, which are to be redeemed between March 2020 to December 2031 with no Debenture Redemption Reserve having been created due to the absence of earned profits by the Company.
25/06/18 Piyush Joshi/CNBC TV18
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