The government is considering raising more than ₹30,000 crore through bonds to repay the debt of Air India, the national carrier which it has agreed to sell to the Tata Group, a senior official in the know of the matter said.
Air India Asset Holdings Ltd (AIAHL), which has been formed to take over the airline’s debt of about ₹75,000 crore and assets worth ₹17,000 crore, will likely issue the bonds. “While the monetisation of assets and earnings through sale will help in repayment of a substantial portion of AI’s debt, the government will still require to pay over ₹30,000 crore and that will be raised through bonds,” said the person on the condition of anonymity.
The government’s move to sell bonds to repay the residual debt of Air India may happen at an opportune time, without disrupting the fiscal math.
Banks, Oil Cos & Others to Get Paid
AIAHL already holds about ₹30,000 crore of Air India debt and another about ₹45,000 crore will be transferred to it before Air India is handed over to the Tata Group. The debt includes about ₹7,400 crore of non-convertible debentures.
About ₹35,000 crore of the liability will be paid from the proceeds of the asset sale and by the Tata Group, the person said. “The rest will have to be paid and the plan is to pay it through a bond issue, which will be government-guaranteed.”
Tata Group’s ₹18,000 crore offer for the airline comprises ₹2,700 crore of cash and assumption of debt worth ₹15,300 crore.
The deal includes the 100% stake in Air India and its low-fare unit, Air India Express, as well as a 50% stake in ground-handling firm AISATS.
The government, through the sale of assets and bond issue, plans to pay off the loans from banks – primarily public sector banks that had lent funds on government guarantees. The government will also clear dues to oil companies, airport operators and other vendors that amount to about ₹15,000 crore.
The government plans to issue a letter of intent to the Tata Group, kicking off the process to transfer the airline to the salt-to-software conglomerate.
The sale requires a lot of approvals, including from the Directorate General of Civil Aviation, clearance under the Substantial Ownership and Effective Control clause (to ensure that the ownership is Indian), from the Competition Commission of India as well as from Air India’s lenders and aircraft lessors. “The clearance from aircraft lessors is required since the existing aircraft are all leased through government guarantee. This approval will be the trickiest since lessors may find more comfort in leasing planes with government guarantee rather than leasing it to a private company,” said a person aware of such deals, who did not want to be named.