In a bid to check high borrowing costs for Air India Asset Holding (AIAHL), the government has exempted the special purpose vehicle from a clause that makes sovereign guarantee on government bonds non-transferable in case of change of ownership of the company.
AIAHL, which houses `29,464 crore of the national carrier’s debt, is looking to raise around `22,000 crore through government-backed and government-serviced bonds.
A senior government official said the ministry of finance waived off the condition as it would have increased the cost of borrowing on government-guaranteed bonds. Under this condition, the sovereign guarantee ceases to exist if the ownership of the entity is changed.
Recently, Food Corporation of India (FCI) was extended a similar exemption after its `8,000-crore bond issue in February evoked a poor response. While the food procurement agency could only raise one-third of the proposed amount, the coupon rate was also higher than the benchmark rates.
“To avoid a similar situation, the same exemption will be granted to bonds floated by AIAHL,” the official said. Rating agency Icra has graded the proposed bonds a triple-A with ‘stable’ outlook. The government transferred Air India’s debt worth `29,464 crore, along with its non-core assets including land into AIAHL, to reduce the interest burden of the airline and improve its balance sheet before the disinvestment. The non-core assets include Air India Air Transport Services, Air India Engineering Services, Airline Allied Services and Hotel Corporation of India. Air India reported a loss of `7,635 crore in FY19 and had a total debt of `58,351 crore at the end of March 2019.
In the Budget speech for 2019-20, finance minister Nirmala Sitharaman said the government is committed to sell Air India. There were no buyers for the government’s 76% stake in Air India when the deadline for bids expired on May 31, 2018.