The central government is set to revise the bidding document for Air India by the month end, allowing either the potential bidders to value the loss-making national carrier purely based on its assets or substantially reduce the ₹23,286 crore debt currently required to be absorbed by the successful bidder.
“At present, the debt offered is nearly equal to the value of Air India’s assets. So the bidding is supposed to take place over and above ₹23,286 crore. But now the transactional adviser EY India has said because of COVID-19, the assets — especially the aircraft which are sitting idle — have lost their value and have become a burden on the company. So EY India says don’t assign value to the assets and let the bidding process discover its value,” a government official said under condition of anonymity.
However, the official said a final decision could also steer towards reducing the existing debt burden for the potential bidders. “A lot of discussion within the government has already taken place on it but we are unable to come to a final decision yet. The proposal has to be first cleared by the core group on disinvestment headed by cabinet secretary and finally by the Air India specific alternative mechanism (AISAM) headed by home minister Amit Shah. We expect a final decision before month end,” he added.
An EY India official refused to comment on the matter asking to wait for a final decision by the government.
“It is difficult to say if a restructuring of the debt burden will be more attractive to the interested bidders. Ultimately, the devil will lie in the details,” said Dipti Lavya Swain, cross border corporate and mergers and acquisitions lawyer.
The first attempt at selling a stake in the flag carrier in March 2018 failed to take off as investors were uncomfortable with the government retaining a 24% stake in the airline as well as the requirement to stay invested for at least three years.
Also, the acquirer was required to absorb Rs49,000 crore in debt. In January this year, in its second attempt to sell the national carrier, the government sought bids for selling its entire 100% equity in the airline, including Air India’s 100% stake in no-frill subsidiary Air India Express Ltd and 50% stake in Air India SATS Airport Services Pvt. Ltd. It also substantially reduced the debt burden need to be borne by the successful bidder out of the total debt of ₹60,074 crore.
However, the government has extended the deadline for submitting bids for Air India several times, especially due to the unexpected unfolding of the coronavirus pandemic. The current deadline ends on 30 October. Aviation minister Hardeep Singh Puri has often said in recent past that Air India has either to be privatized or shut down because of its high debt burden.
The government has set a disinvestment target of ₹2.1 trillion for FY21, including the privatization of Air India and BPCL. So far it has been able to garner ₹5696 crore through offer for sales of Bharat Dynamics and Hindustan Aeronautics Ltd. It is, however, yet to carry out any strategic disinvestment so far this fiscal year. The government had missed the disinvestment target of ₹65,000 crore for FY20 by ₹14,701 crore.
The article was first published on livemint.com.