Air India stake sale plan: Govt may take on burden of working capital debt to make offer attractive to buyer

Efforts to sell 76% stake in Air India failed to take off in 2018

FP Staff September 18, 2019 09:33:05 IST
Air India stake sale plan: Govt may take on burden of working capital debt to make offer attractive to buyer
  • Air India has a debt burden of more than Rs 50,000 crore

  • Efforts to sell 76% stake in the national carrier failed to take off in 2018

  • The government injected Rs 3,975 crore into the airline in the fiscal year that ended 31 March and hived off some debt

In a bid to make the sale of the debt-ridden national carrier Air India more attractive, the government may ease the burden of working capital debt off the buyer.

The proposed new move by the government will lead to halving the burden, according to a report in The Economic Times.  Air India has a debt burden of more than Rs 50,000 crore. The proposal is likely to be discussed at the next Cabinet meeting, the report said.

Efforts to sell 76 percent stake in the national carrier failed to take off in 2018. Then transaction adviser EY in its report had cited the government retaining 24 percent stake and corresponding rights and high debt as reasons for the failure of the disinvestment process, according to PTI.

The government injected Rs 3,975 crore into the airline in the fiscal year that ended 31 March and hived off some debt and the Ministry of Civil Aviation said that the carrier was ready for sale.

Potential bidders for Air India last year suggested they found some of the stake sale terms too onerous, making it a non-starter. The government said high oil prices, a weaker rupee and rising interest rates hurt the sale's prospects, according to a Reuters report.

Air India stake sale plan Govt may take on burden of working capital debt to make offer attractive to buyer

Air India Express. Image courtesy: Air India website

The government has since hived off a part of the airline's debt, about Rs 30,000 crore, into a separate entity and is trying to sell off some of its assets and subsidiaries, such as the ground-handling unit, piecemeal.

Air India stopped giving promotions for its employees and recruiting new personnel as the government prepares for the disinvestment of the debt-laden airline, PTI said.

The government clarified in June that plans to sell debt-laden state-run carrier Air India were still on track, hours after a junior minister told parliament the privatisation was on hold because of high oil prices and volatile exchange rates.

In a statement, the Ministry of Civil Aviation said that the carrier was ready for sale. "Continued support from the government (has) resulted in improvement of (the) financial and operational performance of Air India... the government will now go ahead with the process of disinvestment of the company," the ministry said in a statement.

"The government has prepared a revival plan for Air India which includes a comprehensive financial package," Puri said, adding it would focus on increasing revenue and reducing costs

It issued the statement to correct comments earlier in the day by the country's junior civil aviation minister, who told parliament conditions were still not right to attempt another sale.

"The present environment is not conducive to stimulate interest amongst investors for strategic disinvestment of Air India in the immediate near future," Hardeep Singh Puri said, adding that the government would revisit the sale once global economic conditions become more favourable.

On 3 July, Civil Aviation Minister Hardeep Singh Puri told the Rajya Sabha that the government is committed to the disinvestment of Air India and the plan is to make it more operationally viable before stake sale.

"It (Air India) will be sold when the buyer ultimately gives the cheque and there are certain prerequisites before any sale, those also have to be met. I do expect that to be finished in 4-5 months but nevertheless to provide for that exigency, we have not accounted for Air India sale proceeds (in budgeted disinvestment proceeds).

"We will try to finish it off by Diwali, if not before," Department of Investment and Public Asset Management (DIPAM) Secretary Atanu Chakraborty said on 7 July.

In her Budget speech on 5 July, Finance Minister Nirmala Sitharaman said that in view of current macro-economic parameters, the government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more central public sector enterprises for strategic participation by the private sector.

With inputs from agencies

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