India’s biggest listed carrier will pay $600 million (Rs 3,293 crore) of debt in the year ending March 31 and seek rupee loans with interest rates as low as 10 per cent, Chief Financial Officer Ravishankar Gopalakrishnan said in a November 5 conference call. The company, which pays as much as 14 per cent on some debt, is looking for ways to reduce borrowing costs as the nation’s central bank keeps its benchmark repurchase rate at eight per cent, the highest among major Asian economies, to curb inflation.
“In terms of raising additional equity, being able to reduce your leverage makes it more attractive for potential investors,” Binit Somaia, a Sydney-based director at industry Centre for Asia Pacific Aviation (Capa), said on November 8 by telephone.
Jet Airways must divest at least a five per cent stake by June to meet a rule capping founders’ holdings in companies at 75 per cent. Prime Minister Manmohan Singh in September allowed as much as 49 per cent foreign investment in aviation.
The carrier is selling and leasing back planes to free up cash even as Capa predicts rising fuel and airport costs will increase the record combined debt of local carriers including state-run Air India Ltd. by 18 per cent to $20 billion in a year.
The weighted average cost of the Mumbai-based company’s debt was 11.2 per cent in the three months ended September 30, compared with 11.1 per cent for Tam SA, Brazil’s largest airline, in the quarter ended March 31, data compiled by Bloomberg show.
Jet Airways had Rs 120 billion ($2.2 billion) of liabilities as of September, Raghavan said in the November 5 conference call.
Indian carriers pay as much as 18 per cent interest on short-term debt, and as much as 14 per cent on long-term borrowings, according to a document prepared in June by the ministry of civil aviation. Airlines have sought government help to access long-term funds at a fixed cost, it said.
The benchmark five-year bond yield for Indian banks rated AAA by Crisil, the Indian unit of Standard & Poor’s, has declined 74 basis points this year to 8.78 per cent, according to data compiled by Bloomberg, after the Reserve Bank of India cut lenders’ cash reserve requirements to 36-year low of 4.25 per cent to free up cash for lending. The yield on benchmark 10- year sovereign bonds slid 35 basis points in the same period to 8.22 per cent, the data show.