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The debt-laden national carrier Air India will allot cumulative preferential shares worth Rs 7,000 crore to various lender banks. This will help the banks to restructure its short term working capital debt of Rs 21,511.10 crore.
A cumulative preferential share is a kind of debt instrument. It does not give any voting right or right to sit on board as a shareholder. No interest is required to be paid. Such an instrument does get dividend, but only when the company turns profitable.
On the other hand, the allotee banks will not be required to mention this as non performing assets (NPA) in their books. So, it is a win-win situation for both Air India and the lender banks, a person familiar with the development said. A consortium of 22 banks, including SBI, Bank of Baroda and Bank of India, have provided working capital loan to Air India.
“The Government, the airline and the consortium of bankers will meet on Monday to seal the debt restructuring package. Accordingly, the proposal will be finalised,” a top government official told Business Line . This meeting has been called after the Reserve Bank of India gave a conditional nod for restructuring of Air India's debt last week. The restructuring has to be completed in the next four months.
So, with Rs 7,000 crore subtracted from total short term working capital loans, the remaining amount will get a longer moratorium period. The airline will get 15 years for repayment against the current norm of 10 years. Presently the airline has to pay interest at the rate of 12 to 14 per cent on short term working capital loans. This puts a burden of over Rs 2,600 crore annually on Air India.
Viability period
Another proposal is to extend the viability period for the airline. “It has been agreed that viability period will now be 10 years and not 7.” It means all the calculation will be done on the basis of the premise that the airline will turn profitable in 2020-21.A group of officers, constituted by the Group of Minister (GOM), has projected that the airline is likely to have cash profit by fiscal year 2017-18 and net-worth would turn positive by 2019-20.
Talking about equity infusion, the official said the airline is expected to get the remaining amount of support by the end of this fiscal. It is proposed to give Rs 6,600 crore as equity infusion by the government. The company has already got Rs 2,000 crore. “There is a binding commitment on the part of the Government to infuse equity and it will be honoured,” the official added.
He said that additional equity support and hiving off Maintenance, Repair and Overhaul (MRO) unit and Ground Handling Unit will soon be sent to the Cabinet for approval.
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