New Delhi: The Centre has signed a share purchase agreement (SPA) with Tata Sons on Monday for the sale of its 100 percent stake in debt-ridden national carrier Air India. The news was announced by Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey in a tweet: "Share Purchase Agreement signed today by Government with Tata Sons for strategic disinvestment of Air India." The signing of the SPA is a milestone of sorts as it marks the first privatisation undertaken by the government in nearly two decades.
The signing of the agreement comes days after a Letter of Intent (LoI) was issued to Tata Sons, which was declared as the successful bidder for Air India earlier on October 11. With the signing of the SPA, the Rs 18,000-crore sale transaction has now moved another step closer to its finalisation. Regulatory approvals will be sought from concerned authorities before the formal handing over process begins.
After the sale, Tata Sons will get full management control of Air India and Air India Express and a 50 percent stake in Air India SATS Airport Services Pvt Ltd (AISATS). The group will pay Rs 2,700 crore in cash to the government and will take on Rs 15,300 crore of Air India's debt. The remaining debt of Rs 46,262 crore will be taken over by Air India Asset Holding Ltd (AIAHL), a special purpose vehicle (SPV) set up by the government to hold Air India's loans, four of its units and non-core assets.
The process for disinvestment of Air India and its subsidiaries commenced in June 2017 with the 'in-principle' approval of CCEA. The first round did not elicit any Expression of Interest (EoI). The process re-commenced on January 27, 2020 with the issue of Preliminary Information Memorandum (PIM) and request for Expressions of Interest (EOI).
The timelines had to be extended on account of the situation arising from the COVID-19 pandemic. In view of the excessive debt and other liabilities of Air India arising out of huge accumulated losses, the bidding construct was revised in October 2020 to Enterprise Value (EV) to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition. The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15 percent for equity. As per both the original and revised construct, all non-core assets (land, buildings, etc) are to be transferred to AIAHL and are therefore not a part of the transaction. The transaction saw keen competition with seven EOIs being received in December 2020.
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