In a bid to resurrect Air India privatisation, the government is planning to give flexibility to potential investors to decide on the humongous debt with the national carrier, a top official has said.
The flexibility to potential investors on the quantum of the Rs 60,074 crore debt that they want to absorb will replace the current condition of the buyer taking over more than a third of the debt and transferring the rest to a special purpose vehicle, Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey said.
The potential investors in Air India have given feedback that due to the uncertainty created by COVID-19 in the aviation sector the debt should not be fixed at the Expression of Interest (EoI) stage, he added.
As per the Air India EoI floated by DIPAM in January, of the airline's total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle.
The government is seeking to sell 100 per cent of its stake in the state-owned national airline, including Air India's 100 per cent shareholding in AI Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd.
"On Air India, we would try and sort out the investor issues with respect to debt... “We will see whether we can give flexibility at least at the EoI stage and let the debt be determined through the market rather than freezing it upfront.
“This is what we are examining," Pandey told PTI in an interview.
He said a decision on this would be soon taken by Air India Specific Alternative Mechanism (AISAM) and if there is a change in the Preliminary Information Memorandum (PIM), the potential investors would be given time to raise queries.
"There is a lot of uncertainty in the aviation sector due to COVID and accordingly we should structure the transaction.
“We should not fix everything at the EoI stage.
“That's the feedback we are getting. The point is what debt is sustainable.
“There is a point of view that it can be decided by the market rather than we upfront deciding," he noted.
The AISAM would take a final call on whether bidding for Air India will take place based on equity value or enterprise value, he added.
"We are examining the issue and a decision will soon be taken by AISAM," Pandey added.
The last date for submission of bids for Air India is October 30, which according to sources is likely to be extended till mid-December following the change in PIM.
A popular valuation methodology for takeover deals - Enterprise value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalisation.
EV includes in its calculation the market capitalisation of a company, but also short-term and long-term debt as well as any cash on the company's balance sheet.
On the sale of a strategic stake of the government in other CPSEs, Pandey said there are some transactions that have reached the second stage like the two steel plants of SAIL, and Central Electronics Ltd.
"New EoIs will come in Shipping Corporation of India, In Concor (Container Corporation) as soon as Railways finalise the land policy then we can come out with EoI.
“We can come out with EoI on BEML because their land issues mostly we have sorted out. EoI on Nilachal Ispat Nigam Ltd, Pawan Hans is shortly expected," he said, adding the bid documents for all of these companies will be issued in November.
Pandey further said that the initial public offering (IPOs) of 4 CPSEs -- IRFC, RailTel, TCIL and WAPCOS -- are in the pipeline for the current fiscal.
For the current fiscal, the budget has pegged divestment proceeds at Rs 2.10 lakh crore.
This includes Rs 1.20 lakh crore from CPSE share sale and Rs 90,000 crore from a share sale in public sector banks and financial institutions, including the listing of insurance behemoth LIC.
So far this fiscal, Rs 5,695 crore has been mopped up through the CPSE stake sale.
Photograph: PTI Photo