AI Disinvestment: Government Unlikely To Retire Debt Further

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Air India - Aviatorsbuzz
Air India Boeing 787-Dreamliner. Source: AI

Suitors for Air India are expected to be asked to bid on the basis of a combination of its equity and debt value, as the government moves ahead with a strategic stake sale in the national carrier.

The government is believed to have turned down suggestions to either run the operations for next three years or shut Air India down as mentioned by Union Minister of Civil Aviation Hardeep Singh Puri.

The Times of India reported that a panel of officers tasked with looking into various options put forth by transaction adviser, Ernst & Young was not in favour of reducing the debt by Rs. 23,000 crore.

According to the news report, while the final modalities have to be prepared by the core group on disinvestment headed by Cabinet Secretary Rajiv Gauba, before a greenlight from a ministerial panel, the groundwork is done by the Inter-ministerial Group (IMG).

The newspaper quoted top government sources as indicating that the finance ministry is keen on the Department of Investment and Public Asset Management (DIPAM) moving ahead with the disinvestment programme of public sector companies in line with the Cabinet decision.

Given that Air India has 15,000 employees and vast infrastructure, winding up the airline was not an option, the report said adding closure of the airline will lead to further value erosion. The government had extended the deadline for submission of interest to October 30.

As per the news report, the inter-ministerial group was of the view that the equity value had come down over the last one year due to Air India losing market share, with COVID-19 disruptions further impacting its profitability.

At the same time, the debt burden had only mounted. As a result, the government expects that assigning a prefixed debt level may turn out to be detrimental and could further reduce competition.

The debt of Air India as on March 31, 2019 was Rs. 58, 255 crore. Later in 2019, Rs. 29,464 crore of this debt was transferred from Air India to a government-owned special purpose vehicle called Air India Assets Holding Company Limited (AIAHL).

Following an unsuccessful attempt in 2018, the Government of India re-initiated the process to divest its stake in Air India on January 27. However as COVID-19 struck, the process had to be extended. It has been extended four times thus far, with the final extension for October 30, being granted on August 25.

As per the plan, 100 per cent of government equity in the national carrier, including Air India’s 100 per cent shareholding in Air India Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd will be diluted.

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