The government is likely to include call and put options in the share purchase agreement of Air India to profitably sell its residual stake in the airline after strategic disinvestment.
A put option gives the existing shareholders the right to sell securities at a specified price, thereby providing an exit route from the company. A call option allows the buyer to acquire shares at a predetermined price, which is usually above the current price, within a limited time period, allowing it to increase its shareholding in the company.
While the government will have the put option to sell its residual stake after one year, the strategic partner will be able to exercise the call option for acquiring the residual stake from the government after three years of divestment, senior government officials aware of the process said.
“The general idea is that the strategic partner was there to stay and, depending upon the situation, the government would exit. After sometime, the strategic partner should have the freedom to go it alone and buy out the government stake because, in any case, the government’s policy was to ultimately quit from the commercial venture,” a senior government official said.
The Ministry of Civil Aviation has suggested that the government should holds 24-26 per cent stake in Air India after disinvestment, since it believed that a strategic partner would increase the airline’s efficiency and make it profitable.
However, a final call regarding the quantum of stake sale will be taken by the Air India Specific Alternate Mechanism (AISAM) — a group of ministers headed by finance minister Arun Jaitley.
The put and call option mechanism was part of previous strategic disinvestment processes like that of Bharat Aluminium Company (BALCO), where the government sold 51 per cent and 26 per cent, respectively. In Hindustan Zinc, Vedanta group later exercised the call option to buy out its 18.92 per cent stake at the strategic sale price.
“For Air India, we will like to fix the price for call or put option higher than the strategic sale price because it is expected that a private partner will turn around the company,” the official said.
The Expression of Interest (EoI) for Air India would be released soon, the official said, adding, it was awaiting the final approval from the group of ministers.
The EoI will invite bids for Air India and its core aviation assets along with Air India Express and other subsidiaries like Alliance Air and the ground handling and engineering subsidiaries will be sold separately.