Air India to raise Rs 22,000 cr from bond market, restructure balance sheet

State-owned carrier Air India will hit the bond market to raise Rs 22,000 crore as it looks to restructure its balance sheet before being put up for sale.
 
The fundraising, to be backed partly by a sovereign guarantee, will be done in two tranches of Rs 7,000 crore and Rs 15,000 crore, and used to repay a group of Indian and foreign lenders to whom the airline owes almost Rs 58,000 crore.
 
SBI Caps, the investment bank subsidiary of State Bank of India, has been roped in as advisor to the process, which is the highest fundraising by the company.
 
The Rs 15,000-crore bond issue is expected to have a maturity period of around 10 years while the smaller tranche, of Rs 7,000 crore, will be for a short term of around three years.
 
While the finance ministry has agreed to provide an unconditional guarantee for the Rs 15,000-crore tranche, for the Rs 7,000-crore one, it has asked the airline to raise the repayment amount through sales of assets and subsidiaries.
 
However, it will make a budgetary allocation to ensure the company is able to service the loans in time.
 
“The government has given the go-ahead to the fundraising plan. It will be done on behalf of Air India Asset Holdings (AIAHL),” an official aware of the development said.

Further, the official added, “SBI caps has started talking to potential investors like the Employees’ Provident Fund of India (EPFO), mutual funds, and insurance companies. The message from them is that there is adequate liquidity in the market for a good response.”
 
Debts of Rs 29,464 crore will be transferred to AIAHL, a special purpose vehicle (SPV) created to warehouse working capital loans, non-core assets like real estate and artifacts, and four subsidiaries.
 
A good response from the market is crucial for the company because the government has made its intention clear that it doesn’t want to be in the airline business and wishes to sell the carrier, which has accumulated losses of more than Rs 19,435 crore in the last three years.
 
It also has around 15 aircraft grounded due to lack of spares because it has been unable to pay vendors. The company posted a loss of Rs 7,635 crore, the highest in its history, in FY19.
 
Bond traders have said with a sovereign guarantee for the Rs 15,000 crore raising, bonds will find a good response in the market.
 
“Government-guaranteed bonds will find a favourable response from the EPFO and government-owned insurance funds because they are eager to play safe and government security provides an assurance. There is an appetite in the market, however, and it will depend on the coupon rate of the bonds,” a trader said.
 
In 2012, the company had raised around Rs 7,400 crore, subscribed mainly by Life Insurance Corporation of India and the EPFO.