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Business News/ Companies / Air India mulls REIT IPO to raise funds
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Air India mulls REIT IPO to raise funds

The move that could give Air India significant tax breaks and also improve its finances

Air India’s 800 properties at prime locations include several acres of land, office buildings, sports stadiums and residential colonies. Photo: Abhijit Bhatlekar/MintPremium
Air India’s 800 properties at prime locations include several acres of land, office buildings, sports stadiums and residential colonies. Photo: Abhijit Bhatlekar/Mint

New Delhi: Air India Ltd, India’s state-owned airline, is considering spinning off its real estate assets into a real estate investment trust (REIT) and list it on the stock exchanges in a move that could give the company significant tax breaks and also improve its finances.

Air India has 800 properties at prime locations around the world; it ended 2013-14 with 19,300 crore in revenue and a loss of 5,388.82 crore; the airline had debt of 40,000 crore on its books as of 31 March.

Air India’s 800 properties at prime locations include several acres of land, office buildings, sports stadiums and residential colonies.

The airline’s Mumbai headquarters on the high street of Marine Drive alone is estimated be worth 2,250 crore, according to airline official who declined to be named.

Mint is not aware of any valuation exercise undertaken by the airline.

“We have a lot of land assets and this is one of the routes of monetization. We are considering the option, but a lot of work has to go in," said an Air India executive who asked not to be identified.

This person added that consultants had already made a presentation to Air India on the merits of the REIT route and that the airline’s finance team plans to move forward with this.

“If it works out, we will hold 51% in the REIT; the properties will remain ours but be leased out at the best prices," added the airline executive, who cautioned that a final decision is yet to be taken.

A second Air India executive confirmed that the airline is considering a REIT and that work has started on it.

REITs, which first made an appearance in the US around 50 years ago, are listed on exchanges and use money raised from the public to buy real estate.

A REIT can be set up by a developer or any independent fund manager. The minimum investment to be made is 2 lakh, said Hemal Mehta, senior director, Deloitte Touche Tohmatsu India. And if the REIT pays out 90% of its distributable income to investors, it gets a tax exemption.

The civil aviation ministry has asked Air India to consider this option to pare its debt.

The airline has an 18% share of the domestic market and a 17% share of the international one, and is in the midst of a 30,000 crore equity infusion by the government that is expected to turn around its fortunes by 2021.

There is no clarity on how much the airline plans to raise through its REIT.

If Air India goes ahead with its plans, it will create among the first REITs in India, after the new government allowed the creation of such entities in July.

India’s capital market regulator, the Securities and Exchange Board of India (Sebi), in a 10 August board meeting, approved final regulations for REITs, although these are yet to be notified.

REITs may provide a new source of funds to Indian firms with large land banks, helping them reduce debt, and by 2020, some $20 billion worth of property and land could be held through REITs, according to an estimate by property broker Cushman and Wakefield reported by Bloomberg.

“A REIT offers a regular return on investment and it also captures upside on the appreciation in the value of underlying property. Most of the other instruments either offer regular return (debt securities) or only upside (equity/equity-linked securities)," said Bhairav Dalal, associate director, PwC India.

Mint reported in 2012 that Air India plans to raise money by developing and selling some of its real estate holdings, but nothing much came of that plan.

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Published: 03 Sep 2014, 12:57 AM IST
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