Mumbai: The country’s largest lender by assets, State Bank of India (SBI), and several foreign banks are queuing up to lend $1.06 billion (around Rs5,332 crore) to National Aviation Co. of India Ltd (Nacil), which runs Air India, to buy wide-body planes, two persons familiar with the matter said.
The state-run airline is raising the money to purchase three Boeing Co.-made 777-200 and four 777-300 planes for its international operations, as well as three 737-800 planes for domestic routes. Nacil is also buying one aircraft engine from General Electric Co.
These planes are expected to join Nacil’s fleet between June and December.
Taking wing: A file picture of a Boeing 777-200 aircraft. Nacil plans to buy three such planes that are expected to join its fleet by December. Bloomberg
The other banks vying to fund Nacil are: Barclays Plc., Citibank NA, BNP Paribas SA, Goldman Sachs Group Inc, Standard Chartered Plc., JPMorgan Chase and Co. and Deutsche Bank AG.
“We will be raising 85% of (the) loan through US’ Exim Bank that will be repayable in 12 years, and remaining through commercial lending. The Exim Bank loan will be backed by government of India’s sovereign guarantee,” a Nacil executive said, requesting anonymity.
Another person close the development, who too spoke on condition of anonymity, said SBI has offered to lend the entire sum to Nacil on its own. This could not be independently verified by Mint. Banks typically float a consortium when they lend large sums to companies to mitigate the risk.
Last week, Nacil tied up with a consortium led by IDBI Bank Ltd for borrowing up to $1 billion to purchase 21 Airbus SAS-made planes. These aircraft are set to join Nacil’s fleet by end-May.
These purchases are part of an order Nacil made in 2005, at the peak of the aviation boom in India, for 111 aircraft—68 from Boeing and 43 for Airbus—at a list price of nearly $15 billion.
“Till now, Nacil had raised more than $3 billion at aggressive rates. And out of 111 planes, 46 have already joined our fleet (22 Airbus-made and 24 from Boeing). The most important factor is that Nacil continues to get funding during the liquidity crunch in the Indian market,” the executive said.
On 18 March, PTI had reported that Nacil, which is facing losses of about Rs2,226 crore for fiscal 2009, is among the top 10 loss-making units that depend on the Central exchequer for meeting their expenses.
It added that the government has decided to support distressed public sector units (PSU) in meeting their wage bills and other statutory payments.
“Banks have ample liquidity since they have parked their money with the Reserve Bank of India for just 3.5% interest. If banks find good customers, they will not hesitate to cough out large chunks of money,” said Ravi Shankar, an analyst with Antique Stock Broking Ltd. “Moreover, banks are more comfortable to lend to a PSU that is backed by the government. And (the state-run) SBI could be aggressively pitching for this deal because of the comfort level.”
India’s loss-struck domestic airlines are scouting for working capital and funds for fuelling their expansion during the slowdown.
Financial institutions, however, are cautious about lending to airlines considering their combined $2 billion losses for fiscal 2009.
Jet Airways (India) Ltd has raised nearly Rs1,250 crore towards working capital from two Indian banks, and is looking for drawing additional term loans. Rival Kingfisher Airlines Ltd is also planning to raise some $400 million to fund its expansion. In another development, Nacil is in the process of swapping its foreign exchange loans from floating rate of interest to fixed rate below 2.75%.
“Nacil is hedging interest rate exposure on foreign currency loans over a longer period of time by swapping to fixed interest rate. We are hedging our exposure up to $2 billion,” the Nacil executive mentioned earlier said.
The swapping is being done with leading international banks including Royal Bank of Scotland Group Plc., he added, but declined to give more details.