Lenders to Air India (AI) met on Thursday to vet its revised debt restructuring proposal and said the troubled government airliner could raise funds from the market through government-backed bonds as one way to repay debt.
SBI Caps is advising on the debt recast plan and the banks had rejected an earlier proposal, saying it would worsen asset quality and deplete capital. As a result, SBI Caps (the merchant banking arm of State Bank of India) presented five alternative plans. According to bankers who attended, only two of the five sounded viable.
The proposal which suits banks the most is that AI will issue non-convertible debentures (NCDs), guaranteed by the government, to raise funds for repayment. Bankers said insurance companies can subscribe to such bonds.
The feasible option was that AI convert the loan into bonds, which could be used for calculation of (banks’) Statutory Liquidity Ratio. AI can raise funds by selling the bonds. However, the Reserve Bank of India’s approval is required to float bonds with SLR status.
There was also a proposal to convert banks’ exposure into long-term debt, with a 15-year maturity. “Only the NCD and SLR bond options seemed viable. The other alternatives were not even discussed in detail,” said a banker.
The lenders have to communicate their feedback to SBI, leader in the 26-bank consortium, by Saturday. Then, SBI Caps will discuss the plan with the government and seek approval to implement it. “There may be one more meeting among bankers before finalising the debt recast,” said another banker who attended. Bankers had earlier agreed to a deadline of January 31 for completing the debt recast.
AI has total debt of Rs 43,000 crore, of which bank loans worth Rs 22,500 crore are to be restructured. In the earlier recast plan, it was proposed that 60 per cent of the loans be converted into long-term ones, to be repaid over 15 years, with the balance converted into cumulative redeemable preference shares (CRPS), with an eight per cent dividend.
According to the law, a company can pay dividend only if it makes a profit. Bankers are not sure when the troubled carrier would turn around. Hence, they stand to lose if the debt is turned into a quasi-equity instrument. In on Thursday’s meeting, too, bankers have clarified to SBI Caps that the entire exposure would be treated as loan and not be converted into equity.
While the bankers have outrightly rejected subscribing to CRPS, sources in AI said banks should keep in mind that any other form of instrument like debt, apart from CRPS, if adopted, should not affect cash flow or profitability, as the airline will not be in a position to service the debt due to liquidity constraints. The airline also wants an interim line of credit, both from government and banks, of Rs 250-300 crore till the financial restructuring plan is complete.
