Singapore: The Indian government is counting on a jumbo Rs220bn (US$3.2bn) bond sale to revive efforts to privatise debt-ridden national carrier Air India after a first botched attempt last year.
Air India Asset Holdings Limited, a government-owned special purpose vehicle formed last year to take over Rs295bn of the airline's Rs575bn debt, in addition to various assets and subsidiaries, is set to name underwriters for the proposed bond issue on Monday, according to a source close to the plans.
The SPV is planning to raise Rs70bn from three-year government-serviced bonds on July 15. A sale of Rs150bn 10-year government-guaranteed bonds would follow by the end of the month.
The proceeds will be used to further streamline Air India's debt structure and make it fit for a share sale later this year.
In May 2018, the government offered a 76% stake in the airline but failed to attract a single bidder, causing great embarrassment at the time for the administration of Prime Minister Narendra Modi. AIAHL was formed afterwards to start cleaning up the company's debt burden.
The government confirmed in its budget statement on Friday that it will now "reinitiate the process of strategic disinvestment of Air India".
The company is expected to report a loss of more than Rs76bn for the year to March 2019, up from a loss of Rs53.37bn loss a year earlier, according to Reuters, despite receiving Rs39.75bn of government funds in the last fiscal year.
According to local media reports, Air India does not have enough funds to pay employee salaries beyond October.
Much is riding on the success of the AIAHL bond issue. "The removal of the huge chunk of debt improves the attractiveness of the airline," said a partner from an accounting firm.
However, Air India's previous attempt at issuing a large government-supported bond was not a success. In March, it sent an RFP to raise up to Rs70bn from bonds backed by a government guarantee at tenors of up to 15 years, but the issue did not materialise because investors were not comfortable with the structure.
"There was a clause in the issue that if the ownership changes, the government guarantee will cease to exist," said a DCM banker. That was clearly a concern for investors, given that the government wants to sell its stake.
"Hopefully there will be an unconditional guarantee from the government of India" this time, said a fund manager.
Investors are expected to be keen on the bonds because of the government guarantee and the pick-up over government securities.
"Investors do not have to worry about repayment. If Air India Asset Holdings is not able to sell the assets and subsidiaries, the government will pay the coupon and principal to the bondholders," said another DCM banker.
Few investors participated the last time Air India came to the market in December 2012, when it raised Rs74bn from 19-year bonds at 9.27%. That issue had an unconditional government guarantee and was taken up by Employees' Provident Fund Organisation and Life Insurance Corp of India, both of which are controlled by the government.
05/07/19 Krishna Merchant/Nasdaq
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Air India Asset Holdings Limited, a government-owned special purpose vehicle formed last year to take over Rs295bn of the airline's Rs575bn debt, in addition to various assets and subsidiaries, is set to name underwriters for the proposed bond issue on Monday, according to a source close to the plans.
The SPV is planning to raise Rs70bn from three-year government-serviced bonds on July 15. A sale of Rs150bn 10-year government-guaranteed bonds would follow by the end of the month.
The proceeds will be used to further streamline Air India's debt structure and make it fit for a share sale later this year.
In May 2018, the government offered a 76% stake in the airline but failed to attract a single bidder, causing great embarrassment at the time for the administration of Prime Minister Narendra Modi. AIAHL was formed afterwards to start cleaning up the company's debt burden.
The government confirmed in its budget statement on Friday that it will now "reinitiate the process of strategic disinvestment of Air India".
The company is expected to report a loss of more than Rs76bn for the year to March 2019, up from a loss of Rs53.37bn loss a year earlier, according to Reuters, despite receiving Rs39.75bn of government funds in the last fiscal year.
According to local media reports, Air India does not have enough funds to pay employee salaries beyond October.
Much is riding on the success of the AIAHL bond issue. "The removal of the huge chunk of debt improves the attractiveness of the airline," said a partner from an accounting firm.
However, Air India's previous attempt at issuing a large government-supported bond was not a success. In March, it sent an RFP to raise up to Rs70bn from bonds backed by a government guarantee at tenors of up to 15 years, but the issue did not materialise because investors were not comfortable with the structure.
"There was a clause in the issue that if the ownership changes, the government guarantee will cease to exist," said a DCM banker. That was clearly a concern for investors, given that the government wants to sell its stake.
"Hopefully there will be an unconditional guarantee from the government of India" this time, said a fund manager.
Investors are expected to be keen on the bonds because of the government guarantee and the pick-up over government securities.
"Investors do not have to worry about repayment. If Air India Asset Holdings is not able to sell the assets and subsidiaries, the government will pay the coupon and principal to the bondholders," said another DCM banker.
Few investors participated the last time Air India came to the market in December 2012, when it raised Rs74bn from 19-year bonds at 9.27%. That issue had an unconditional government guarantee and was taken up by Employees' Provident Fund Organisation and Life Insurance Corp of India, both of which are controlled by the government.
05/07/19 Krishna Merchant/Nasdaq
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