Debt-laden Air India Ltd is set to raise about ₹1,000 crore this week to complete a total fundraising of about ₹6,150 crore in short-term loans from local lenders, said two people with direct knowledge of the matter.
The fresh debt will be used to refinance comparatively pricier foreign currency bridge loans taken to purchase seven Boeing Co. 787 and 777 jetliners, the two people said, on condition of anonymity.
“The airline has completed raising six of the seven tranches, with the last remaining tranche expected to be completed in the coming week,” said one of the people cited above.
The loans will carry a sovereign guarantee.
Air India has also offered its Boeing 787 and 777 among other planes as collateral for the loans, which will be repaid in a year, according to a tender document posted on the airline’s website last month.
Air India planned to raise a total of ₹6,150 crore in seven tranches, comprising three tranches of ₹790 crore each, three tranches of ₹925 crore each, and one tranche of ₹1,005 crore, according to the bid document.
“The exercise was carried out to retire high-cost debt,” the second person said.
Spokespersons at Air India were not immediately available for comment.
According to the tender document, the interest rate payable by the national carrier will be linked to “MCLR/G-sec rates with a reasonable spread as margin”. The marginal cost of funds-based lending rate, or MCLR, is a tenor-linked internal benchmark. Typically, banks cannot lend at a rate lower than the MCLR of a particular maturity for all loans linked to that benchmark.
Air India’s borrowing plans come amid the government’s proposed plan to sell its stake in the airline amid the pandemic that has crippled the global civil aviation industry.
The government has recently revamped terms to privatize the carrier in a renewed effort to attract bidders.
Air India will now be sold based on its enterprise value, and bidders can quote the level of debt they are comfortable absorbing.
Air India has liabilities and provisions, including short-term loans and trade payables, of ₹70,686.6 crore and a net debt of ₹58,255 crore at the end of FY19—the latest available data.
The government has earlier transferred ₹29,464 crore of this debt from Air India to a government-owned special purpose vehicle, Air India Assets Holding Co. Ltd.
The government has, however, turned down the carrier’s request for an equity infusion; instead, it has agreed to stand as a sovereign guarantor for the airline’s debt.