MUMBAI: Air India may bypass the market to sell the bulk
of its Rs 7,400-crore bond issue with LIC and the retirement fund body EPFO in what will be the largest debt
offering in recent times.
This could be intended
to punish market participants who had not shown much interest to the issuance,
fearing that the government would not back NCDs with a full and final
guarantee.
"Or,
it's also possible that the corporation does not want to attract any
controversy over the pricing of the issue. It is being attractively priced and
we hope that other investors have a chance," said a senior officer with a
financial institution.
Investor interest in the NCD has gone up with the government now
spelling out that there will be unconditional and irrevocable guarantee for the
timely repayment of principal and interest.
The guarantee will
remain in force even if AI does not meet its NCD obligations due to any winding
up or similar proceedings initiated against the company.
Also, most investors feel that exit will be easy if two
of the country's biggest debt investors - LIC and EPFO - are interested in the
paper. "The initial response was somewhat cold since many nationalised
banks have exposure to Air India and are unlikely to be interested to buy the
paper in the secondary market.
Since the return
offered is attractive, the government and as well as the corporation may have
felt that let the earnings go to a state-run entities," said a broker. AI
officials declined to comment on the matter.
The government has
given a pricing band of 50-70 bps above the yield on government security of
similar maturity. At 70 bps, this works out to 9.27%, which is an attractive
return.
The NCD will have a
tenor of 19 years, with principal redemption in five equal instalments starting
from the 15th year and interest payments will be made bi-annually. The
programme is part of the government's restructuring plan to revive the airline.
AI will have to open a
designated bank account in which interest payments as well as principal
repayments will be deposited by the issuer or guarantor.
According to rating agency Fitch, "Future developments
that may, individually or collectively, lead to negative rating action include:
failure of GoI to meet its obligation in a timely fashion on invocation of
guarantee, attachment of the designated account by receiver/liquidator and AI's
subsequent inability to vacate the designated account within such time frame so
as not to affect the access of the trustee to the monies in the account, such
that the trustee may pay the NCD holders on time."
AI has an operating
fleet of 92 aircraft (35 owned and 57 leased). The company has an extensive
network and operates flights to 50 Indian cities and 26 international destinations.
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