Govt helps Air India avoid default, refinances Rs 700-crore NCDs

By: |
March 27, 2020 12:13 AM

The airline had raised Rs 700 crore from the debt market through a non-convertible debenture issue and the same was up for interest payment or redemption.

Air India, DGCA, IDBI Trusteeship ServicesThe government has come to the rescue of the national carrier.

The government has come to the rescue of the divestment-bound national carrier Air India, whose operations and revenue are crippled due to the coronavirus lockdown from a default on a Rs 700-crore debt repayment that was due Thursday.

The Rs 700-crore non-convertible debentures of the national carrier were due for redemption or interest payment on Thursday. And till Wednesday, the management was struggling to arrange funds. But the government has come to the rescue of the carrier.

“We have fully refinanced the debt with a short-term financing from a couple of banks,” an Air India source told PTI without offering more details.

The airline had raised Rs 700 crore from the debt market through a non-convertible debenture issue and the same was up for interest payment or redemption today.

The airline had an interest obligation of Rs 30 crore on the instrument, according to domestic rating agency India Ratings. The agency had on March 23 warned that the national carrier might default on the debt payment, given the poor cash flow position after the announcement of the closure of national airspace.

Accordingly, the rating agency had on the same evening placed the instrument on rating watch negative with negative outlook.

The issuer’s account was not provided for the same as of March 25, according to India Rating report last evening.

The amount was on rating watch negative since March 23, which reflects delays in funding the designated account as on 23 March 2020, as confirmed by the trustee IDBI Trusteeship Services.

The airline also has another NCD worth Rs 7,400 crore coming up for redemption in May and June 2020 but the agency has retained its rating and stable outlook.

The agency has received confirmation from trustee IDBI Trusteeship Services that it has invoked the pre-default guarantee extended by the government on February 6, 2020, and the designated account is not funded as of March 23, 2020.

Air India has to fund the trust and retention account 60 days prior to the due date for interest payments/principal repayments. In the absence of which, the trustee can invoke the guarantee. Consequent to such invocation, the designated account had to be funded by the government three days prior to the due date.

According to the Air India’s FY19 annual report, the airline had delayed repayment to financial institutions, banks and government and its total overdue interest stood at Rs 198 crore as of March 2019.

The airline is implementing a financial restructuring plan to refinance debt of Rs 29,464 crore and the plan also includes a transfer of Rs 1,300 crore from Air India Asset Holdings to Air India to service interest on the aforementioned debt.

According to the DGCA data, the airline’s domestic market share remained flat at 11.5 per cent during April-July 2019 and for the full FY19 at 11 per cent, while its passenger load factor stood at 81.5 per cent. The company had reported an operating loss of 1,024 crore in FY19, better than Rs 1,471 crore in FY18 as its operational margins plunged to 8.2 per cent in FY19 from 15.7 per cent in FY18, making it the lowest in the industry.

Still the airline has adequate liquidity thanks to government support. In FY19 it had infused Rs 3,975 crore more than double of what it had given in FY18 at Rs 1,800 crore.

In FY19, AI’s consolidated revenue rose to Rs 29,240 crore from Rs 25,980 crore, but had an operating loss of Rs 1,020 crore as against an operating profit of Rs 1,470 crore in the previous year. Its gross interest expenses marginally rose to Rs 4,900 crore from Rs 4,650 crore and debt rose to Rs 60,050 crore from Rs 57,330 crore.

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