Tatas negotiate Air Asia's India exit price as airline gets $54 mn offer

Foreign fund making $54 mn offer is ready to prepay airline's expensive loans, but will only invest if Tatas, which hold RoFR, issue no-objection clearance

The Tata group and Tony Fernandes-led Air Asia Berhad are discussing the latter’s exit from Air Asia India even as the Malaysian airline is getting a $54 million firm offer from a foreign fund. If the Tata group, which has the right of first refusal (RoFR), declines to buy AAB’s 49 per cent stake then the stake will be sold to the fund by AirAsia Berhad. 

“Apart from buying the 49 per cent stake from AAB, the fund is ready to prepay high-cost, short-term loans taken by Air Asia India from Deutsche Bank, HSBC and Tata Capital. This will help Air Asia India lower its finance costs as it is paying a steep interest rate of 11.25 per cent on these short term loans,” said a source close to the development.

The foreign fund has made it clear that it will invest only if there is a no-objection clearance from Tata Sons Ltd.

The Tatas have also invested in Air Asia India's optionally convertible debentures (OCDs) worth Rs 550 crore which, when converted, will increase Tata’s stake to 60 per cent from the present 51 per cent.

An email sent to Air Asia Berhad and the Tata group did not elicit any response.

For both Tata and Air Asia Berhad, the exit of AAB is necessary as Tatas want to consolidate their stake in the low-frills carrier, while AAB requires funds back home in Malaysia where it is facing a tough financial situation following the Corona pandemic, which has led to a collapse of air traffic.

Another big hurdle faced by Air Asia in India is the ongoing investigations by the Enforcement Directorate and the Central Bureau of Investigation for paying bribes to get airline permits. The foreign investors are planning to seek indemnity from any investigation if they invest in Air Asia India.

“The ball is now in the Tata’s court. AAB can give 30-day notice to the Tatas as per RoFR norms and then it can sell the stake to a third party. With a $54 million offer in AAB’s hand, there is a benchmark price for further negotiations,” said a banker close to the development.

The Tata group is already running two airlines in India – Vistara and Air Asia India and there were reports that the group is also interested in bidding for Air India.

Both Vistara and Air India are making huge losses. In the current fiscal, like Air Asia India, Tata SIA Airlines – the operator of Air Vistara -- has received equity infusion from both partners to the tune of Rs. 500 crore in April 2020.  

The Corona pandemic has hit both airlines with Air Asia India reporting a loss of Rs 330 crore in the March quarter on revenues of Rs 928 crore. This was as compared to a loss of Rs 147 crore on revenues of Rs 631 crore in the March quarter of 2019.

        Hard Negotiations

•  Air Asia India net worth turns negative
• Foreign investors see value in Air Asia India
• Tatas will have to match foreign fund's offer
• Funds want indemnity from any investigation by Indian govt