Air India invites merchant bankers to raise $1 bn

Two days after the government okayed a turnaround plan, cash-strapped national carrier Air India invited merchant bankers to raise working capital loans up to $1 billion from overseas markets.

The move follows the government allowing Air India to borrow up to $1 billion annually through the external commercial borrowing (ECB) route.

The airline has floated an "invitation of offers" for raising funds through the ECB route. It is seeking to raise the funds for at least one-year period at either a fixed or floating rate, according to the offer document.

Air India is also open to any innovative structured financing package which reduces the financing cost, the document says.

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Last Thursday, the government approved the much-awaited turnaround plan and a financial restructuring plan (FRP) that involves a Rs 30,000-crore (Rs 300 billion) equity infusion by the government over the next eight-year period and a debt recast (CDR) of Rs 21,200 crore (Rs 212 billion).

The financial restructuring plan will provide relief to Air India from its debt servicing obligations on working capital loans in the form of a substantial reduction in interest outlays, while giving it the necessary time to improve its operational efficiency.

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The airline's current outgo on interest payment to the banks is Rs 2,400 crore (Rs 24 billion), which will come down drastically.

Air India signed four agreements with the SBI-led 19 banks consortium on March 31 -- the master restructuring agreement, the working capital facility agreement, the appointment of facility agent agreement and the appointment of trustee agreement, under the turnaround and CDR plans.

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A highlight is the conversion of about Rs 11,000 crore (Rs 110 billion) of working capital loans into long-term debts, which will lead to a saving of about Rs 1,000 crore (Rs 10 billion) this fiscal itself.

Besides, the airline will issue government-guaranteed non-convertible debentures (NCDs) worth Rs 7,400 crore (Rs 74 billion) to its lenders, like financial institutions, banks, LIC and EPFO.

The NCDs would be used to repay part of the airline's close to Rs 21,200 crore (Rs 212 billion) working capital loans.

Air India has outstanding loans and dues worth Rs 67,520 crore (Rs 675.2 billion).