Centre may completely exit Air India, sell its residual stake to LIC

According to preliminary information memorandum, Air India's new owner will be asked to list the company in some time

The Centre may completely exit Air India by selling its residual stake to Life Insurance Corporation of India (LIC) and other financial institutions, according to government sources. This move would help address investors’ concerns related to possible interference in the airline’s operation. 

As part of the privatisation process, the government has decided to disinvest 76 per cent equity stake in Air India Limited, along with Air India’s 100 per cent holding in its subsidiary, Air India Express Limited, as well as 50 per cent in ground handling joint venture AISATS.

A senior official aware of the government’s plans told Business Standard discussions are about to start with LIC and other state-owned insurance companies for selling the government’s remaining stake in Air India after employee stock ownership plans (ESOPs) are given out to the permanent employees. 

Subsequent to the ESOP, an employee stock pool will be created, resulting in the government shareholding falling below 20 per cent. “After creating the ESOP pool, we will reach out to the board of the financial institutions to discuss selling our residual shareholding,’’ the official said. With some financial institutions holding the stake, the Ministry of Civil Aviation will have little oversight over the airline, he said. “So, the private management will be able to run it (Air India) as any other competitive entity in the aviation sector,” the official added. Queries sent to LIC remained unanswered.

Potential bidders and sector analysts had earlier argued any government holding in Air India may discourage investors. “Our view is that a joint ownership with the government is, at best, a very difficult proposition and we would not go down that path,” Rakesh Gangwal, co-founder of IndiGo, had earlier said.

LIC and other state-owned insurance firms hold stake in many blue-chip companies. According to regulations of the Insurance Regulatory and Development Authority of India (Irdai), insurance companies can hold up to 15 per cent in a company.

“A valuation for Air India will be reached, based on which a price will be discovered. The entities will be approached to buy the stake at that price,” another official said. “It is expected that with improved performance of Air India under a private management, it will be lucrative to hold the company’s shares and the same can be offloaded during public listing,” he added.

According to the preliminary information memorandum, Air India’s new owner will be asked to list the company in some time. The terms will be spelt out in share purchase deal. In recent times, the government has leaned on state-owned insurer to support a number of its other initiatives: offering soft loans to the railways, subscribing to the power sector’s Ujwal Discom Assurance Yojana bonds and investing in the National Investment and Infrastructure Fund.