Suitors asked to place financial bids for Air India

by Joseph K. Clark

Only bids of those investors, who have received security clearance, will be opened. The government has started inviting financial bids for state-run Air India (AI), moving a step closer to the national carrier’s privatization, which is expected to be completed by September.

Tata Group was reportedly among the “multiple” suitors who had preliminary bids for the loss-making airline in December 2020. The government is selling its entire 100% stake in AI that has been bleeding ever since its amalgamation with Indian Airlines in 2007.

The Centre has now issued a request for proposal (RFP) to the shortlisted bidders, asking them to submit financial bids. These are expected to be filed in a couple of months. Sources said that the bidders will then have to get security clearance from the home ministry, which may take another month.

Only bids of those investors, who have received security clearance, will be opened. The transaction may be concluded by August-September once all regulatory approvals are obtained by the winning bidder.

Meanwhile, the department of investment and public asset management (Dipam) has given the shortlisted firms access to the data room and the actual share purchase agreement (SPA) for a better understanding of the asset and liabilities of the airline.

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Having failed to attract substantial interest since 2017, the Centre has sweetened the AI deal by giving potential suitors the flexibility to decide how much of the airline’s debt they would like to take on as part of the deal.

Earlier, the buyer was required to take over as much as `23,286 crores of AI’s total debt of over `60,000 crores (as of March 31, 2019); the government was supposed to absorb the rest.

Moreover, on October 29 last year, addressing the concerns expressed by potential buyers amid fresh Covid-induced uncertainties, the Centre had changed norms by allowing bids based on the airline’s enterprise value (market value of debt and equity). The buyer won’t need to accept any pre-determined level of debt but will require to pay 15% of the enterprise value quoted by it in cash.

With the sweetening of the deal, senior government officials are optimistic about the AI deal going through this time. The bids for AI are likely to be under `20,000 crore. With Covid-19 hitting the aviation sector hard, Air India has estimated that its cash losses would rise 80% on year to `6,000 crores in FY21. Air India CMD Rajiv Bansal had said that the carrier’s losses could be around `8,000 crores in FY21.

On January 27, 2020, the government invited EoI for the proposed strategic disinvestment of AI by management control and sale of 100% stake, which will include AI’s 100% stake in Air India Express and 50% in Air India SATS Airport Services.

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