SINGAPORE, Nov 16 (IFR) - Air India has launched the first
tranche of its INR74bn (USD1.3bn) 19-year bond sale. The INR5bn
tranche, launched in the morning, is being placed with the
Employees' Provident Fund Organisation (EPFO).
A second tranche of INR3bn, to be launched next week, will
be placed with India's largest insurer LIC. The remaining bonds
will also be placed with these two state-owned investors over
the next couple of days.
The private placement to these two investors has surprised
the industry which was waiting for the bond sale for months.
The sale is the biggest ever for the country and an
important milestone in Air India's restructuring but it has been
pushed back several times since August.
The deferment was because the company was not given an
unconditional guarantee by the government.
A guarantee from the government did come on September 18 but
it had conditions stipulating the company had to meet certain
milestones for its performance every five years.
This conditional guarantee was not acceptable to Air India
and bond investors. Subsequently, Air India has obtained
unconditional guarantee from the government.
Air India, which has not posted a net profit in the last
five years, has maintained that it would not be able to meet any
performance milestones in an already competitive industry.
Placing the entire bond sale with state-owned investors has
given a certainty of execution to the national carrier, besides
offering a cost saving on the coupon. "Private banks will never
have offered such a pricing," said a DCM head of a
private-sector Indian bank.
Air India will pay a coupon of 9.08% semi-annually on its
bonds, according to a source close to the issue.
Aviation Secretary K N Srivastava said yesterday that Air
India would save INR1bn a month in interest payments after the
bond sale since the bonds would refinance short-term loans.
However, industry experts have criticized the bond sale as
worse than a government bailout.
"First, the government gives an unconditional guarantee to
an ailing giant and then buys the toxic assets using the pension
money of its employees," said another Mumbai-based DCM banker.
Under a INR224.68bn restructuring plan approved for Air
India in April, the company was supposed to complete the jumbo
bond sale by September 30 to refinance its short-term loans.
Air India bonds are Triple A rated by Crisil and Fitch.