India likely to ease Air India offer, let suitors decide on taking debt

India is ready to sweeten the deal for the sale of Air India Ltd., the loss-making state-owned carrier, a finance ministry official said.

The government is considering allowing potential suitors for Air India decide how much of the flag carrier’s debt they want to take on as part of the deal, Disinvestment Secretary Tuhin Kanta Pandey said in an interview in New Delhi. The bid date is also likely to be extended beyond Oct. 30 to give investors time to make an offer, he said.

“We will remove the constraints that the current structure of the transaction poses for investors,” Disinvestment Secretary Tuhin Kanta Pandey said in an interview in New Delhi last week. “We are now thinking of letting the market determine the level of debt. That means we don’t freeze it.”

Current rules require bidders to take over the carrier’s $3.3 billion of aircraft debt, deterring buyers. Air India has been unprofitable since its 2007 merger with state-owned domestic operator Indian Airlines Ltd., and has relied on taxpayer money to keep flying, with the bailouts adding to the pressure on already strained government finances.

“It is very difficult for the government to keep on sustaining Air India. Winding up could be disastrous,” Pandey said. “The only course now is to proceed toward disinvestment.”

The sale of Air India is crucial to the government’s plan of meeting its asset sale target of Rs 2.1 trillion ($28.6 billion) in the financial year to March. The pandemic-induced downturn has already hurt tax revenues and upset asset sale plans, with less than 5% of the targeted amount being raised so far. Economists estimate the shortfall will blow out the deficit to more than double the budgeted 3.5% of gross domestic product.

The government is reworking its strategy according to the changed situation, Pandey said. It has decided not to raise money via exchange traded funds, avoid repeated offer-for-sale for the same stock, and encourage buybacks, besides trying to conclude the sale of state companies such as Bharat Petroleum Corp., he said.

“Budget has no meaning in a Covid-19 situation,” said Pandey, adding that the asset sale aim would not be achieved. “We will not get into budget target. What we are saying is what’s possible post coronavirus.”