Leading Indian banks that have lent to the cash-strapped aviation sector have finalised a three-pronged strategy for the Reserve Bank of India (RBI) to restructure the ballooning debts of most airlines.
These initiatives will help the country’s three biggest carriers — Air India, Kingfisher Airlines and Jet Airways (India) Ltd — which control 65 per cent of domestic passenger traffic but have a combined debt of Rs 63,045 crore ($13.5 billion). The Indian Banks’ Association (IBA), the umbrella body for the industry, would send a letter to RBI, suggesting the strategy, three independent lenders told Business Standard, on condition of anonymity.
“In a day or two, IBA will be sending the letter. IBA has been roped in as it’s an industry viewpoint on a big sectoral restructuring. It should not be seen as one bank trying to restructure debt of one particular airline. The issues affect all,” said a senior lender, whose organisation has high exposure to the sector. RBI had asked the lenders on June 18 to come up with concrete plans to restructure the debts of airlines.
The development, however, could not be independently verified. RBI did not comment on the subject. However, RBI Deputy Governor Usha Thorat, in an analyst call today, said she was still awaiting a response from the lenders on the package.
The needs of individual airlines are different. So, the suggestions cover both macro and case-specific prescriptions, according to the sources.
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The lenders have agreed on a two-year moratorium on the principal amount on the short-term debt, starting April. This will, of course, give the airlines a breathing space, as immediate repayment of loans will further strain their balance sheets. There is still some difference among the lenders if the repayment schedule can also be rescheduled by another seven years after the moratorium ends. There are also plans to revise the average rate of short-term debt to 10.5-11 per cent from the prevailing 12.5-14 per cent.
For Jet Airways, the lenders have suggested converting $500-750 million of debt into ECBs. Lenders said out of a total liability of close to Rs 15,000 crore, the short-term debt stood at Rs 3,000 crore. Jet is a unique case, as unlike others, a major portion of its debt is due to aircraft purchases. Most of its peers take aircraft on leases.
Aviation industry officials said an ECB option was what Jet had always been asking for from regulators.
“Provided the terms are beneficial and there is appetite from foreign banks, then the ECB option will certainly come handy. Jet also has dollar income. Raising dollar debt at, say, Libor plus 350 is theoretically a lot cheaper than raising rupee debt today at 10.5 percent,” said a senior aviation industry official.
According to the unaudited numbers of March, Jet paid Rs 1,047 crore as interest. Its profit before interest, depreciation and tax was Rs 1,606 crore.
Jet Airways officials did not want to comment on the story.
For Kingfisher, the lenders have suggested that close to Rs 1,500 crore be converted into CCPS. SBI’s merchant banking arm is restructuring Kingfisher’s debt, which stood at Rs 7,413 crore as on December 2009. Earlier, the apex bank had shot down SBI’s proposal to recast Kingfisher’s Rs 2,099-crore short-term debt. The remaining amount is long-term debt. For the financial year ending March 2009, the net loss stood at Rs 1,647.22 crore.
The promoters of Jet and Kingfisher have also been asked to infuse additional equity. Kingfisher plans to raise $200 million via a global depository receipt issue and has appointed four merchant bankers — Citi, UBS, Morgan Stanley and CLSA — for this. Kingfisher’s management recently told analysts that it would be infusing Rs 350 crore in FY11. Kingfisher’s management did not comment on the proposed debt restructuring package.
For Air India, lenders said the government had assured that a recovery was indeed in sight and they would be infusing equity as and when required.