Air India divestment: EY may be sole transaction advisor

Rothschild is likely to walk out of the process citing low transaction fee

A disagreement over fees may see EY emerge as the sole transaction advisor for disinvestment process of state-owned carrier Air India.

Sources aware of the development said that Rothschild did not agree to the fee of 0.2 per cent of total transaction value. citing it as “too low for such a complex process.” According to guildelines of the bidding process, the fee quoted by EY, which was the highest in the preferred bidder list, was set as standard fees for the transaction. EY quoted 0.4 per cent of the total disinvestment proceeds reduced by the debt.

According to the rules, Rothschild would have been paid half the share (0.2 per cent of the total disinvestment proceeds reduced by the debt). The British multinational bank, which quoted higher at 1.5 per cent, did not agree to the fee. “Rothschild says they will be unable to agree to that amount as the process of Air India disinvestment was too complex,” said a senior government official.
 
The official said that the rules of bid cannot be changed after the process is over and EY alone will get the mandate. “EY is likely to be the sole transaction advisor in the process as Rothschild has signalled to step out of it,” he said. Amitabh Malhotra, co-head and managing director of Rothschild India refused to comment on the issue. An EY spokesperson was not immediately was not available for comment.
 
“The financial bids were too low charge for such a complicated deal compared to international benchmark, the process not only includes the property of Air India but also of its five subsidiaries, despite that the quotations were low may be because it will be a marquee deal,” said a person who attended the process.

In a NutShell

• Bidding regulations mandate that transaction fee quoted by the first bidder be set as standard fee for transaction
• Rothschild would have received 0.2% of the total disinvestment proceeds reduced by the debt
• Rothschild wanted a 1.5% fee

 
EY and Rothschild were chosen as transaction advisors for the proposed disinvestment of state-owned Air India while Cyril Amarchand Mangaldas will appointed as the legal advisor after DIPAM invited Expression of Interest (EoI) for appointing transaction advisors and law firms.

The selection process of the bidders was based on a technical round which had a weightage of 80, following a financial bid with a weightage of 20. While KPMG, Shardul Marchand Mangaldas and Luthra and Luthra made it to the final round based on the score of technical bids, they were edged out by the winners in financial bidding as the advisory fees quoted was very low 
The mammoth deal includes an operating fleet of 142 aircraft comprising sixty-five A-320 aircraft, fifteen B777 aircraft, twenty-four 787 aircraft, twenty-three 737-800 aircraft and eleven ATRs and four B747 aircraft.
 
Apart from the main company, five Air India subsidiaries and a joint venture firm have been included in the strategic sale plan. These are its low cost airline Air India Express Limited; ground handling arm Air India Air Transport Service Limited; maintenance, repair and overhaul subsidiary Air India Engineering Services, regional connectivity operator Airline Allied Service, Hotel Corporation of India and Air India’s 50:50 joint venture with Singapore Air Transport Services (SATS) for ground handling activities.