State owned carrier Air India is all set to hit the bond market to raise ₹ 22,000 crore, which would qualify as its biggest ever fundraising activity in an attempt restructure its balance sheet before being put up for sale.
After a failed attempt to sell the airline via its disinvestment program last year due to lack of interest from bidders, the government is giving it another shot this year. But before that it wants to clean up its Balance Sheet and is looking to raise money to pay off a group of Indian and foreign lenders to whom the airline owes in excess of ₹ 58,000 crore.
Therefore, this fundraising becomes very important and Air India cannot afford for it to be under subscribed.
The bond issue of ₹ 22,000 crore is expected to be done in two tranches of ₹ 7,000 crore and ₹ 15,000 crore with a maturity period of three years and ten years respectively. The important thing to note is that the ₹ 15,000 crore issue will be guaranteed by the Ministry of Finance and hence being government backed would be considered as a safe bet and the risk of default is negated to that extent. Potential investors such as LIC, Employees Provident Fund of India (EPFO), mutual funds and insurance companies are being roped in to subscribe to the bond issue. The response to the issue would be dependent on the coupon rate which is yet to be decided.
Air India has not been performing well during the last decade and has received budgetary support from the government totaling ₹ 30,520 crore so far since 2012. Its provisional results were released last week which stated that the national carrier has racked up a loss of ₹ 7,365 crore which would be its highest ever. Its debt has increased over the years as well and now weighs in at an astronomical figure of ₹ 58,352 crore.
The government has been footing the bill and keeping the airline afloat till now. Finally, fed up of bleeding cash it decided on a disinvestment program to sell 76% majority stake and privatise the airline which failed due to lack of interest from bidders. While we cannot find fault with the intention of the government to hive off its loss making unit, it’s hard to fathom just who would want to make such a big dent in their pocket and purchase national carrier