Ground-handling arm of Air India to be monetised first: DIPAM Secy

In a Q&A, Tuhin Kanta Pandey says govt has started initial investor outreach for the LIC IPO, and investment bankers are working on a strategy

The government has started preliminary investor outreach for the initial public offering (IPO) of Life Insurance Corporation (LIC) of India, and investment bankers are working on a strategy, says Department of Investment and Public Asset Management (DIPAM) Secretary TUHIN KANTA PANDEY in conversation with Nikunj Ohri. The government will soon finalise the foreign investment limit for the insurer, which could be less than 25 per cent. Besides Bharat Petroleum Corporation (BPCL), privatisation of BEML, Shipping Corporation of India (SCI), Neelachal Ispat Nigam (NINL), Pawan Hans, and Central Electronics (CEL) is being targeted for completion in the current fiscal year (2021-22, or FY22). Edited excerpts:

What is the strategy to monetise assets of Air India held through Air India Assets Holding (AIAHL)?

AIAHL has a ground-handling company, engineering corporation, Alliance Air, residual assets of Hotel Corporation of India, land, and building. To sell land and buildings, the asset monetisation framework will have to be followed. Air India has been trying to monetise its residential properties. Monetisation of major buildings, Vasant Vihar colony in Delhi will take place after Air India is handed over to the new buyer. This will be a longer exercise since international property consultants will be appointed, land will be valued, and auctioning and the bidding will take place.

For share sale in companies, AIAHL’s shares in these companies will be sold, starting with privatisation of the ground-handling arm - Air India Air Transport Services.

How will AIAHL retire Air India’s debt?

There are two possibilities: one, raising money through the market; two, novating guarantees. Novating guarantees will mean lenders will agree that the sovereign guarantee will be transferred to them through AIAHL. The debt will continue to have government guarantee and AIAHL will pay up, based on the repayment plan finalised. Since AIAHL does not have any immediate income because the assets are yet to be sold, the government will support AIAHL through Budget provisions or allow it to raise money from the market.

There could be other liabilities that will come to AIAHL. They may have to be paid off. To that extent, it will have to raise money through government-guaranteed bonds and use the proceeds to pay off liabilities, including dues of oil companies.

This will be worked out in the two-month window before handing over the airline to the Tatas.

Will the land special purpose vehicle (SPV) play a part in monetising land and buildings of Air India?

Land SPV will help companies monetise their land. AIAHL is a government-owned entity and has to rely upon outside help, given that it is not a functioning company. It will have a contract with the SPV that will monetise the land and buildings of AIAHL for a fee.

Cabinet approval for setting up the land SPV will be sought, following which the company will be registered and people recruited.

AIAHL can also avail of services of NBCC (India) to help it monetise its land.

Will there be government representation on the board of Tata-owned Air India? What is the business continuity plan?

The government will not own a single share in Air India. There will not be any board representation either. The government has sold 100 per cent its shares.

The business continuity clause will mean the Tatas will have to keep running the airline for three years, and cannot exit the flying business.

Will the new buyer be able to merge Air India with other airlines?

In under a year, the new buyer will not be able to sell equity, except if there is a merger or amalgamation and the equity is being infused. New partners can be brought in, shares can be issued to them, but they will have to hold at least 51 per cent shares of Air India. 

From the second year, the equity can be brought below 51 per cent, and if the stake is picked up by a foreign investor, the extant foreign direct investment (FDI) policy will prevail.

These conditions have not been set keeping any buyer in mind, but have been set for the highest bidder. 

Will completing a complicated Air India deal help with other privatisations, such as BPCL?

In terms of our own capacity-building and bidder competence, this will embolden us to further close other privatisation proposals. Moreover, bidders are convinced we can close deals that are complicated in nature.

Will an open-offer exemption be granted to BPCL buyer, especially for stake held in Petronet LNG and Indraprastha Gas (IGL)?

The request is still being considered by the Securities and Exchange Board of India and will be resolved. To avoid a takeover of two more companies by the new buyer, IGL and Petronet LNG joint offer can also be explored by other joint venture partners. We plan to close the transaction this year.

Which are the other public-sector undertakings targeted to be completed this year?

Besides BPCL, privatisation of BEML, SCI, NINL, Pawan Hans, and CEL is being targeted for completion in FY22.

Has the Centre started approaching investors to participate in the LIC IPO?

LIC IPO will be launched in the fourth quarter of FY22. Once the embedded value (EV) is derived, we will be able to file the draft red herring prospectus. 

Investor outreach has started. Investment bankers are working on a strategy. Numbers will hinge first on the EV, then the total valuation. EV is an important component, but not the sole outcome. There will also be the value of the new business that will be considered. 

What will be the permissible FDI limit in LIC?

The FDI policy will sort out the foreign investment. There are different permutations and combinations being explored. A decision hasn't been taken yet. The crucial point is 51 per cent has to be with the Centre. The government cannot divest more than 25 per cent for five years. So, it will be less than 25 per cent. There is no point allowing FDI up to 49 per cent now. It can be in line with public sector banks (PSBs), where 20 per cent FDI is allowed.

Has the government started preparing for privatisation of two PSBs? Also, what is the progress on IDBI Bank divestment?

The plan is to come up with an expression of interest for IDBI Bank privatisation in December. The Reserve Bank of India will be engaged in the beginning of the process to vet candidates. Conditions for bidders will be mentioned in the preliminary information memorandum. The Department of Financial Services is working on the legal amendments for privatisation of two other PSBs.

How will land SPV work?

Land SPV will be able to get the land transferred as a title. It will be able to perform multiple functions like monetising, developing land, and will have numerous disposal methods. It can do an outright sale, come up with a developer model, and long-term leases, among others.

Any steps to protect jobs at PSUs being privatised?

The government has engaged with employees of Air India and that is the best course of action. Protection of jobs of employees is paramount. But the government should protect jobs on a sustainable basis, not through Budget subventions. If the growth of enterprises and the potential of that efficiency is ensured, jobs will grow. That has been our experience in past privatisations as well.