Air India: US based fund in talks with banks, others to join the bid
The InvIT structure will help the fund to encourage institutional investors to participate in Air India's growth story once its privatisation is over
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Air India | InvIT | Air India sale
Dev Chatterjee | Mumbai
Last Updated at September 27, 2020 19:06 IST
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The valuation exercise for Air India by Interups Inc is almost complete.
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Revival, not survival
With the Tatas unsure about making a bid for Air India, US-based fund Interups Inc is giving final touches to its own, which includes forming an infrastructure investment trust (InvIT) to house the revenue-generating infrastructure of the airline.
The InvIT will help the fund to encourage institutional investors to participate in Air India’s growth story once its privatisation is over.
The airline’s core operations will not be part of the InvIT structure.
“The Tatas are unsure about making the bid, especially because they have to raise $20 billion to buy out the Mistry family’s 18.37 per cent stake in Tata Sons. Besides, its foreign partners in the airline business have raised concerns about investing via their joint venture, Vistara. But other bidders are planning aggressive bids,” said a banker close to the development.
“The government may get a pleasant surprise in Air India’s disinvestment,” the banker said.
Valuation by Interups is almost complete. The fund has started talks with Indian banks and other investors to join the bid and invest in the InvIT.
When contacted, Interups Inc declined to comment.
The InvIT structure has become an attractive way for Indian companies to raise funds from foreign investors. Reliance Industries, India’s largest company, transferred its telecom tower infrastructure and related debt to an InvIT sponsored by Brookfield for ~25,215 crore.
Reliance Jio is also planning to transfer its fibre optic network to another InvIT.
The National Highways Authority of India is monetising its road assets via an InvIT.
Several bidders, such as the Hindujas, who had shown an interest in Air India, have backed out due to the Covid-19 pandemic. IndiGo, India’s largest airline, was interested in taking over Air India’s international operations.
But in a statement on Saturday, IndiGo said at this point it was not interested in Air India.
The government has set the deadline of October 30 for submitting expressions of interest. One suggested by the government’s transaction advisor is to reduce the debt to zero so as to make the airline attractive for sale.
Just before the disinvestment plan was announced, the government had transferred part of Air India’s debt of ~60,000 crore to an asset-holding company.
According to the earlier plan, a debt of ~23,286 crore was to remain with Air India and Air India Express.
Another hurdle the bidders are facing is Air India’s latest financial numbers. This is a handicap because their projections are based on the 2018-19 financials.
But despite this, bankers said the airline was attractive because it had a fleet of 121 aircraft. Of these, 65 are owned, on finance lease, or on bridge loans; 21 are on a sale-and-lease-back model, the remaining 35 are on operating lease. The airline has parking slots all over the world, which adds to its valuation.
The airline has interests in entities (Air India Engineering Services, Air India Air Transport Services, Airline Allied Services, and The Hotel Corporation of India) that are in the process of being transferred to a separate company. Air India Assets Holding will not be part of the disinvestment.
Apart from Air India, the government is planning to sell Air India subsidiary Air India Express, and its stake in its flight kitchen arm, AISATS.
