Ai Board Okays Selloff Proposal

The Air India board has approved the Disinvestment Commission's recommendation of divesting 60 per cent of the government's stake in the national carrier.

Sources told Business Standard that the divestment panel's report on AI was cleared at the meeting of the Indian Airlines board, which has the same composition as the AI board, on Monday. The report will be now presented to the government through the ministry of civil aviation.

The commission has suggested divesting 40 per cent equity to a strategic partner, 10 per cent to domestic institutional investors through the competitive bidding route and 10 per cent to domestic retail investors and company employees through an offer for sale.

Civil aviation minister Ananth Kumar has indicated that the government is in favour of the commission's recommendations, but any decision will have to be cleared by the cabinet.

Details such as the eligibility norms for a strategic partner are yet to be worked out. The commission has suggested that the strategic partner should be a consortium of airlines and investors, with Indian investors in the consortium holding 10 per cent of AI's equity, implying that Indians would hold a 70 per cent stake in AI.

AI has to be a `national' carrier with at least 50 per cent stake held by Indian entities if it is to continue utilising the bilateral landing agreements it has with 60 countries. These bilateral agreements are expected to be the main attraction for any strategic partner.

The Commission has proposed that the AI divestment be undertaken in steps. The government should immediately infuse Rs 1,000 crore as equity, which would raise AI's share capital to Rs 1,154 crore. The Vijay Kelkar committee, which is preparing a report on restructuring AI, has, however, suggested an injection of Rs 500 crore equity into AI this year.

Next, AI should issue new shares of a face value of Rs 770 crore to a strategic partner on the basis of global competitive bids, thus reducing the government holding to 60 per cent.

Thereafter, the government should disinvest 20 per cent of the total paid-up capital by offering 10 per cent to domestic institutional investors at the price paid by the strategic partner, and 10 per cent to retail investors and employees at a discount to the price paid by the strategic investor.