MUMBAI: The government has agreed to provide an
unconditional sovereign guarantee for a Rs 7,400 crore debenture issue by Air
India, relenting finally to a request from the national carrier which needs the money
to pay down previous loans.
The finance ministry, which had in the past held off from guaranteeing this debt unless it was linked to some performance milestones, has now agreed to an irrevocable and unconditional guarantee, which will help the loss-making, state-run airline raise funds at cheap interest rates.
The company said the bonds would have a tenure of 19 years and the coupon on them will be capped at 70 basis points (bps) over the yields on similar-duration government bonds.
The finance ministry, which had in the past held off from guaranteeing this debt unless it was linked to some performance milestones, has now agreed to an irrevocable and unconditional guarantee, which will help the loss-making, state-run airline raise funds at cheap interest rates.
The company said the bonds would have a tenure of 19 years and the coupon on them will be capped at 70 basis points (bps) over the yields on similar-duration government bonds.
One basis point is
one hundredth of a percentage point.
"The proceeds of the debentures will be used to repay the short term working capital facility availed by Air Indiafrom the 19 banks," the airline said in a statement.
Air India was forced to defer the issue of these bonds twice in the past after the government had insisted it would offer a guarantee only it the company could meet certain performance milestones.
Without a government guarantee, the debt-laden airline could not have managed to secure a good credit rating from the ratings agencies, which would have made the pricing of the bonds unfavourable.
With a guarantee in hand now, traders do not expect any problems in the sale of these bonds.
"There is good appetite for government-guaranteed papers," said Paritosh Kashyap, head of debt capital markets at Kotak Mahindra Bank. "I wouldn't be concerned about the sale of these bonds...Some people may expect a certain pricing because of the size of the issue."
Air India officials will meet with the rating agencies to finalise credit ratings and the company is expected to announce the deadline for bids from merchant bankers keen to manage the issue by next week. According to merchant bankers, the company is yet to get the copy of guarantee from the ministry.
In April this year, 19 lenders had approved a restructuring plan for Air India.
The company was expected to receive capital infusion of about Rs 23,000 crore from the government, along with restructuring of Rs 22,000 crore worth of working capital loans.
A part of these loans were to be converted into long-term loans and part of it was to be repaid from the receipts from the bond sale.
http://timesofindia.indiatimes.com/business/india-business/Air-India-Rs-7400-crore-debenture-issue-gets-government-guarantee/articleshow/16763137.cms"The proceeds of the debentures will be used to repay the short term working capital facility availed by Air Indiafrom the 19 banks," the airline said in a statement.
Air India was forced to defer the issue of these bonds twice in the past after the government had insisted it would offer a guarantee only it the company could meet certain performance milestones.
Without a government guarantee, the debt-laden airline could not have managed to secure a good credit rating from the ratings agencies, which would have made the pricing of the bonds unfavourable.
With a guarantee in hand now, traders do not expect any problems in the sale of these bonds.
"There is good appetite for government-guaranteed papers," said Paritosh Kashyap, head of debt capital markets at Kotak Mahindra Bank. "I wouldn't be concerned about the sale of these bonds...Some people may expect a certain pricing because of the size of the issue."
Air India officials will meet with the rating agencies to finalise credit ratings and the company is expected to announce the deadline for bids from merchant bankers keen to manage the issue by next week. According to merchant bankers, the company is yet to get the copy of guarantee from the ministry.
In April this year, 19 lenders had approved a restructuring plan for Air India.
The company was expected to receive capital infusion of about Rs 23,000 crore from the government, along with restructuring of Rs 22,000 crore worth of working capital loans.
A part of these loans were to be converted into long-term loans and part of it was to be repaid from the receipts from the bond sale.
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