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Aviation companies to get cheaper credit

November 28, 2007 10:42 IST

The Union Cabinet on Monday gave its approval for accession to the Cape Town Convention/Protocol by India.

The convention provides an international legal and institutional framework for creation, prioritisation and enforcement of international interests in aircraft, thereby facilitating cross-border financing and leasing of aircraft.

The move is expected to help Indian aviation companies get cheaper credit and broaden their aircraft financing options.

Union Information and Broadcasting Minister P R Dasmunshi said the convention would provide greater confidence to the intending creditors and reduce risks applicable to asset-based financing and leasing transactions.

The Convention, which came into effect in 2006, provides a balance between enhanced creditor rights that helps in reducing aircraft financing costs. It applies to sale, financing and leasing of airframes, aircraft engines and helicopters among other things.

"The risk reduction will not only result in the availability of aviation credit at a cheaper cost, but will also broaden the spectrum of financing alternatives available to the aircraft operators. This will be of immense help to the Indian aviation industry," he said.

Most of the Indian airlines are at present in the process of leasing and purchasing of aircraft.

The Cabinet also allowed public sector enterprise Hindustan Paper Corporation (HPC) to form a subsidiary for setting up a paper mill to produce value added paper at Jagdishpur, located in Congress MP Rahul Gandhi's constituency Amethi, at an estimated cost of Rs 2,742 crore (Rs 27.42 billion) -- constant cost basis -- and Rs 3,241 crore (Rs 32.41billion) -- completion cost basis.

"The subsidiary will have 51 per cent equity holding by HPC and shall raise the balance 49 per cent equity from the capital market through an IPO. HPC will be granted a loan of Rs 255 crore (Rs billion) to subscribe by way of promoters' 51 per cent contribution equity," said Union Minister for Information, Broadcasting and Parliamentary Affairs P R Dasmunshi.

The draft Five-Year Plan for the Eleventh Plan was also placed before the Cabinet today. Prime Minister Manmohan Singh has asked the ministers to go through it, following which a detailed discussion will take place.

The Cabinet also approved a plan for reviving the Visakhapatnam-based Bharat Heavy Plate and Vessels Ltd (BHPV) by waiving off loans and interest amounting to Rs 414.95 crore (Rs 4.15 billion) and settling the company's outstanding liabilities amounting to Rs 263.97 crore (Rs 2.64 billion).

The company's authorised capital will be increased to Rs 70 crore (Rs 700 million), of which Bharat Heavy Electricals Ltd will subscribe Rs 34 crore (Rs 340 million) as equity. BHEL will be investing Rs 275 crore (Rs 2.75 billion) for BHPV's upgradation, making the latter its subsidiary.

Dasmunshi said the Cabinet gave its approval for withdrawal of the University Grants Commission (Amendment) Bill, pending in the Rajya Sabha since 1995.

The Cabinet also gave its approval for moving a resolution by the railways minister in Parliament for adoption of the recommendations of the Railway Convention Committee (2004) on extension of concession available on construction of new lines.

The cabinet gave its approval for constitution of the National Disaster Response Fund (NDRF) with a corpus of Rs 100 crore (Rs 1 billion) under the ministry of home affairs.

"Approval has also been given to the merger of NDRF with the National Calamity Contingency Fund w.e.f April 2010," he said.

The cabinet also gave its approval for introduction of a Bill in the parliament by amending the Indian Council of World Affairs Act, 2001 on the lines of the draft Indian Council of World Affairs (Amendment) Bill, 2007 to make the minister in charge of the External Affairs Ministry the Council's ex-officio president (instead of the country's Vice President) for the council's effective functioning.

Approval was also given to create two posts of additional solicitor general and upgradation of one post of additional secretary to special secretary in the Legal Affairs Department as a measure personal to K D Singh till August 31, 2008 (date of Singh's retirement) or his leaving his post, whichever is earlier.

BS Reporter in New Delhi