Tata Sons rebuffs US-based fund Interups' offer to buy AirAsia stake

The Tata group has refused to acknowledge an offer by US-based fund Interups Inc to buy 49 per cent in AirAsia India, currently owned by AirAsia Berhad (AAB) and the Indian conglomerate.

The Interups offer was endorsed by AirAsia Berhad, which is looking at exiting India due to financial problems faced by the company back home in Malaysia. The Tata group’s consent is necessary for the transaction because both partners have the right of first refusal (RoFR) to each other’s stake.

Interups had not only offered to buy the 49 per cent owned by AirAsia Berhad but also Tata Sons’ 51 per cent at the same valuation.

“There was no response to the Interups proposal from the Tatas though the offer was backed by AirAsia Berhad, which was getting around $54 million by selling its stake in the Indian venture,” said a legal source. 

An email sent to Tata Sons and Interups did not elicit any response.

While Interups has made several proposals to acquire stressed assets in India including Reliance Naval, Asian Colour Coated Ispat, and Lavasa Corporation, it has not yet been successful in buying a single project.

A source said one of the options studied by Interups was to invest in AirAsia India’s holding company, owned by AirAsia Berhad, and then indirectly own AirAsia India shares. No final decision has yet been taken.

The Tata group’s airlines, like the rest of the airlines in India, are facing an unprecedented crisis due to the pandemic, which has resulted in a drastic fall in the number of passengers and capacity.

Tata Sons had to invest additional money in both AirAsia India and Tata SIA Airlines so that both airlines could operate. 

Tata SIA has received an equity infusion of Rs 500 crore from the joint-venture partners (Singapore Airlines is the other one) in April this year. Tata Sons has also put in Rs 500 crore in AirAsia India’s convertible debentures, which, when converted into equity, will increase the Tatas’ stake to 60 per cent from the present 51 per cent.

Interups had also offered to pre-pay high cost, short-term loans taken by AirAsia India from Deutsche Bank, HSBC, and Tata Capital so that the airline can lower its finance costs. It is paying a steep interest rate of 11.25 per cent on its debt.

The pandemic has hit both airlines, with AirAsia India reporting a loss of Rs 330 crore in the March quarter on revenues of Rs 928 crore. This is against a loss of Rs 147 crore on revenues of Rs 631 crore in the March quarter of 2019. 

Analysts are expecting a contraction in domestic passenger traffic this financial year, and a significant reduction in earnings over last year. This will prompt airlines to significantly reduce capacity to stay afloat, besides looking for opportunities to contain costs. Despite unlocking in a phased manner since May, airlines have been operating only a fraction of their fleet, and that too at dismal load factors.