Air India Assets’ ₹7,000 cr bond issue fully subscribed

Air India Assets Holding Ltd (AIAHL), a special purpose vehicle created by the government to park a part of the national carrier’s debt, has raised ₹7,000 crore through a bond sale to refinance its debt, two people with direct knowledge of the matter said.

“The bond issue of Air India Assets Holding Ltd with a three-year tenure of ₹1,000 crore (and) with a greenshoe option of ₹6,000 crore has been fully subscribed at 6.99%,” one of the two people said, requesting anonymity. A greenshoe clause gives the underwriter the option to sell more securities than initially planned if there was demand.

“The company received bids worth ₹20,830 crore, which is the highest in the yield-based bond market in the history of the BSE. The company has decided to accept the entire issue of ₹7,000 crore,” the person added.

Air India’s net debt swelled from about ₹55,000 crore at the end of March 2018 to ₹58,351.93 crore at the end of March 2019. It includes working capital and aircraft-related debt. AIAHL will raise about ₹29,000 crore through bond sales in September, said the second person on condition of anonymity.

“During the next 10-15 days, Air India Assets Holding will raise ₹15,000 crore through another bond issue. This will be followed by yet another bond issue of ₹7,400 crore, the proceeds of which will be utilized for novation of NCDs (non-convertible debenture) secured earlier by the airline,” the second person said. Novation is the act of substituting a valid existing contract with a replacement contract, where all concerned parties mutually agree to make the switch.

The rupee-denominated bond issue, and the subsequent repayment of the working capital debt, will nearly halve the interest servicing outgo for Air India from ₹4,500-5,000 crore a year to about ₹2,700 crore a year, said the second person.

Mint had on 28 August reported that Air India Assets Holding is expected to repay ₹22,000 crore of its ₹29,464 crore working capital debt in September.

Meanwhile, Air India’s loss widened to ₹8,400 crore in the year ended 31 March from ₹5,337 crore in the previous year, because of higher operating costs and foreign exchange losses. The national carrier’s total revenue in 2018-19 stood at around ₹26,400 crore.

Air India, which has about 128 aircraft, began operations on 13 new domestic and six international routes in the last fiscal year.

The cash-strapped airline, which is surviving on government bailout, has so far received an equity infusion of ₹30,520.21 crore from the Centre, as part of a 2012 turnaround plan.

Air India Assets Holding was set up by the government in February to park accumulated working capital loans not backed by any asset, four subsidiaries of the state-run airline—Air India Air Transport Services Ltd, Airline Allied Services Ltd, Air India Engineering Services Ltd, and Hotel Corporation of India Ltd—non-core assets, such as painting and artefacts, and other non-operational assets of the airline.

Only Air India Air Transport has been transferred to Air India Assets Holding as of now.