A consortium of banks led by State Bank of India (SBI) would like to convert part of their existing loans to airlines like Air India, Kingfisher Airlines and Paramount into long term-term bonds, as part of a debt restructuring. Banks, however, are not keen to provide any significant interest rate waiver for the loans, which some airlines have found difficult to service.
The consortium had met recently to draft debt recast plans on the basis of strategies prepared by SBI Capital Markets. A senior Bank of Baroda (BoB) official said banks have offered to convert 15% of their existing loans into long-term bonds, which may be extended up to 12 years.
?The loan repayment tenure has also been extended to 9 years as against the earlier 6. We have also reduced interest rate to 11% from the earlier 12-12.5%. The net present value (NPV) of the sacrifice to be made by banks is about Rs 600 crore,? the official said.
SBI is leading a 13-bank consortium to restructure loans worth Rs 63,315 crore to the airline industry. Out of this, Rs 8,000 crore have become non-performing assets, accumulated during the global financial crisis of 2008-09 when airlines landed in the red. BoB has a total exposure of Rs 3,000 crore to airlines like Air India and Kingfisher.
After the debt recast plan was finalised, banks have provided additional working capital of Rs 900 crore to Kingfisher Airlines, which will be released in November. Kingfisher Airlines also plans to raise Rs 1,500-crore capital through global depositary receipts.
The consortium has banks including IDBI, Bank of India, BoB, Citibank, Indian Overseas Bank and ICICI Bank. Together, these banks have an exposure of Rs 4,000 crore to Kingfisher Airlines. The airline has a long-term loan to the tune of Rs 2,000 crore, while the balance is in form of short-term loan.
After Kingfisher Airlines, the consortium of banks will prepare the restructuring plans of Air India. Air India has current debt of Rs 19,000 crore and is desperately trying to cut costs by fleet and route rationalisation.
Banks want to recast the debt outside the mechanism of corporate debt restructuring. Under the Reserve Bank India?s? one-time relaxation, banks are free to restructure these loans by either converting a portion of the NPA into equity capital, extending the tenure of the loan with a repayment moratorium or by lowering interest rates.