RBI clears airline debt recast plan

RBI clears airline debt recast plan

Mumbai: The Reserve Bank of India (RBI) has given its go-ahead to State Bank of India (SBI) to restructure the ballooning debt of the airline industry, according to bankers familiar with the development.

SBI’s investment banking arm SBI Capital Markets Ltd (SBICaps) is working on the debt recast plan. SBI, India’s largest lender, is leading a 13-bank consortium to restructure the loans of the industry.

RBI has given its nod to the plan, according to a banker who has exposure to the airline industry. A senior SBI official too confirmed that his bank has received such instructions from RBI, but declined to give any further details. Both the bankers did not want to be identified.

An email sent to RBI and SBICaps remained unanswered.

“The issue is confidential and we are not aware of what the terms are as yet. But what we know for sure is that SBICaps has been given some instruction on what terms the restructuring should be," said the first banker.

Another senior public sector banker, whose bank also has exposure to airlines, said SBICaps has not approached his bank with any plan to restructure the debt as yet.

Jet Airways (India) Ltd, Kingfisher Airlines Ltd and National Aviation Co. of India Ltd (Nacil)—which collectively control 65% of domestic passenger traffic—have a combined debt of $13.5 billion (Rs63,315 crore). State-owned Nacil runs Air India.

The issue arose after SBI approached RBI to restructure more than Rs2,000 crore of Kingfisher’s debt. RBI declined to clear that proposal as it was not comfortable with the idea of giving any special concession to any particular aviation company.

This prompted the bank to put forward the case of the entire airline industry instead of a particular firm.

The banks had wanted to restructure the debt outside the mechanism of corporate debt restructuring (CDR). A loan account goes to CDR when 75% of lenders in terms of value of the exposure agree and the loan recast is made through paring interest rates, replacing high-cost rupee loans with low-cost foreign currency loans and stretching the maturity of the debt, among other things. Firms benefit from CDR, but it hurts their credit ratings, making it harder for them to raise fresh debt or dilute equity.

Among other demands, SBI had suggested that promoters of aviation firms be allowed to raise equity, the bank’s chairman O.P. Bhatt said on 12 August.

RBI has allowed the banks to recast the debt outside the CDR platform.

At the end of the first quarter, SBI’s exposure to the industry was at least Rs3,500 crore, Bhatt had said.

Kingfisher said on Tuesday it would be raising $250 million through global depository receipts and a further Rs500 crore through a domestic offering.

“This funding is expected to be completed within the next three-four months," the airline said in a statement on Tuesday. Kingfisher will convert its debt of around Rs650 crore into preferential equity shares.

Kingfisher’s shares rose 5.14% to Rs62.40 apiece on the Bombay Stock Exchange on Wednesday. Jet Airways rose 0.51% to Rs722.35, as the Sensex gained 1.31% to 18,205.87 points.

Kingfisher has reported a net loss of Rs187 crore for the June quarter, lower than the Rs243 crore loss posted a year ago. Jet Airways reported a net profit of Rs3.52 crore for April-June, while budget airline SpiceJet’s profits more than doubled to Rs5.52 crore.

Sanjiv Shankaran contributed to this story.