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To save Air India, Centre considers swapping debt with debentures worth Rs 29,000 cr

PW Bureau

The move follows the government’s attempts to strengthen the airline’s health, including considering ways to reduce its interest outgo and selling the debt-laden carrier for USD1 billion New Delhi: To pay off Air India’s outstanding working-capital loans, the Centre has considered issuing Non-Convertible Debentures (NCD) of up to Rs 29,000 crore. The move follows the government’s attempts to strengthen the airline’s health, including considering selling the debt-laden carrier for US$1 billion. One of the government’s proposals is to issue the NCDs, which will come with sovereign guarantees, from Air India Assets holding (AIAHL), the company formed to reduce the outstanding working-capital loans from the airline. “A plan to transfer the debt to a subsidiary, complete with the approvals from the lender banks, is taking a lot of time as various banks have to agree,” said a senior government official, who did not want to be named, told The Economic Times. “AIAHL can issue the NCDs to raise money and repay the outstanding loans to banks… That is being considered.”
“According to norms, the transfer of loans to another company can happen with board approvals from banks but the interest rates cannot change because that would then amount to loan restructuring.”
The NCDs could reduce the debt servicing costs, currently between 9 percent and 11 percent, by up to 300 basis points besides speeding up the process to transfer the loan from the books of Air India. “Another option also is that AIAHL, backed by government guarantees, goes to the market, raises loans from banks and repays the existing lenders,” said the official. However, officials say that the process to take approvals from the various lending banks to transfer the debt is rather tedious as the boards at the respective lenders must agree. Additionally, the interest rates on the existing loans would not change after the debt transfer. “According to norms, the transfer of loans to another company can happen with board approvals from banks but the interest rates cannot change because that would then amount to loan restructuring,” another official said, on the condition of anonymity. “But if AIAHL were to issue NCDs or take loans directly from banks, that would bring some relief to interest repayment costs as well.”