The financially troubled carrier Air India has applied for government guaranteed loans of Rs 6,150 crore via a short-term loan (STL) from domestic lenders by the end of this month.
The money will be used to refinance the loans taken out for the purchase of seven Boeing 787. According to the tender document, the company asked the banks to submit their bids before November 20, indicating the principal amount that they are ready to offer. The bank with the lowest all-in interest rate ”will be preselected first.
The interest rate will be tied to MCLR (Marginal Cost of Fund-Based Lending Rate) instead of the base rate with a reasonable spread as a margin. The MCLR is lower than a bank’s base rate because it calculates interest on a marginal cost of funds, rather than the average cost of funds.
This is the first time Air India has approached lenders to raise funds since the coronavirus pandemic hit the aviation industry, which has forced the government to delay the airline’s privatization process four times. . On October 29, the tender parameters were relaxed to allow bidders to quote company value instead of equity value and extended the deadline to December 14.
Civil Aviation Minister Hardeep Singh Puri said it would attract bidders who so far have built the debt amount as the minimum bid amount.
Finances being strained, the government refused to inject money into the airline, forcing it not to pay creditors such as donors and airports.
At the end of September 30, the national carrier owed approximately 2,258.27 crore rupees to the Airports Authority of India, the highest of any airline.
With the government agreeing to provide a sovereign guarantee, this shows an intention to operate the airline as a going concern until the divestment is made, the official said.
As part of a turnaround plan, Air India has received nearly Rs.31,000 crore as an equity infusion since FY12, but has failed to improve the company’s financial position Aerial.
“Air India had requested around Rs 500 crore as equity support to cover the losses induced by the pandemic, but this request was rejected because the government is not able to offer equity support because its expenses have increased to provide food, additional health infrastructure due to COVID. However, as the privatization process was delayed, it was decided to provide sovereign guarantees, so that the airline could raise short-term loans for working capital and other payments, ”a senior official said. of the government.
With flights unauthorized for two months and passenger demand still subdued, the already financially struggling company expects its loss to more than double to Rs 8,000 crore in FY21. an internal estimate, the monthly requirement to keep business as it is will require Rs 500 crore. Adding other costs, it will take almost Rs 12,000 crore over the next two years.
With the government agreeing to provide a sovereign guarantee, lenders Business Standard spoke to said the company, despite its fragile financial situation, would get a good response. “Air India’s creditworthiness is due to the full, unconditional and irrevocable guarantees provided by the Government of India through the Ministry of Civil Aviation. This ensures that all of the company’s repayment obligations are met, ”the rating agency CRISIL said.
Crisil cited the example of a non-convertible debenture facility of Rs 700 crore where the sovereign guarantee was invoked because the principal was not funded.