The Civil Aviation Ministry has committed an equity infusion of Rs 19,911 crore into Air India during the 12th Five Year Plan. The commitment came in the ministry’s approach paper to the plan. The amount is over and above the last few rounds of equity infusions that have taken the carrier’s paid-up capital to Rs 3,345 crore.
The new rounds of infusion, bankers say, will be used partly to capitalise some of Air India’s debt, which now stands at Rs 48,000 crore. Of this debt, Rs 20,000 crore is owed to domestic banks; a restructuring of this part is under way. In the last round of negotiations, bankers sought a sovereign guarantee on the debt and turned down an SBI Caps suggestion that Rs 8,000 crore of the debt be converted into cumulative redeemable preference shares, according to a report by Financial Chronicle. The bankers also suggested that the debt be converted into bonds and the amount be considered part of their Statutory Liquidity Ratio (SLR) obligations. In that event, the bonds would be liquid and help banks meet their cash requirements from the Reserve Bank of India at the liquidity adjustment facility auctions. One bank official, who declined to be identified, said, “We are confident that the government will accept the proposal.” In November, Air India had floated bonds worth Rs 5,500 crore backed with a government guarantee. But during yesterday’s credit policy meeting, D Subbarao, Governor, Reserve Bank of India, is reported to have said that the central bank was not in favour of providing SLR cover to Air India’s debt. Bankers said once the equity infusion was completed, Air India’s debt-equity ratio would come within the 60:40 range, as is required for bank funding. Another Rs 13,052 crore would come in the form of internal and extra-budgetary resources. The funding is expected to sychronise with the delivery of aircraft, starting from 2012-13. In the next financial year alone, the government is expected to infuse Rs 3,685 crore of equity into the company. A top Air India official said, “We expect delivery of five Boeing aircraft in the next financial year.” Fresh equity infusions will also help reduce its debt burden. Air India now pays Rs 800 crore in interest payments. Conversion into equity would reduce the financial stress on the carrier, the official said.
Click here to see the original article>The new rounds of infusion, bankers say, will be used partly to capitalise some of Air India’s debt, which now stands at Rs 48,000 crore. Of this debt, Rs 20,000 crore is owed to domestic banks; a restructuring of this part is under way. In the last round of negotiations, bankers sought a sovereign guarantee on the debt and turned down an SBI Caps suggestion that Rs 8,000 crore of the debt be converted into cumulative redeemable preference shares, according to a report by Financial Chronicle. The bankers also suggested that the debt be converted into bonds and the amount be considered part of their Statutory Liquidity Ratio (SLR) obligations. In that event, the bonds would be liquid and help banks meet their cash requirements from the Reserve Bank of India at the liquidity adjustment facility auctions. One bank official, who declined to be identified, said, “We are confident that the government will accept the proposal.” In November, Air India had floated bonds worth Rs 5,500 crore backed with a government guarantee. But during yesterday’s credit policy meeting, D Subbarao, Governor, Reserve Bank of India, is reported to have said that the central bank was not in favour of providing SLR cover to Air India’s debt. Bankers said once the equity infusion was completed, Air India’s debt-equity ratio would come within the 60:40 range, as is required for bank funding. Another Rs 13,052 crore would come in the form of internal and extra-budgetary resources. The funding is expected to sychronise with the delivery of aircraft, starting from 2012-13. In the next financial year alone, the government is expected to infuse Rs 3,685 crore of equity into the company. A top Air India official said, “We expect delivery of five Boeing aircraft in the next financial year.” Fresh equity infusions will also help reduce its debt burden. Air India now pays Rs 800 crore in interest payments. Conversion into equity would reduce the financial stress on the carrier, the official said.