Government, Tata Sons sign share purchase agreement for Air India

Our Bureau New Delhi | Updated on October 25, 2021

The government and Tata Sons have signed a share purchase agreement on Monday, October 25, 2021, for the strategic disinvestment of Air India.

Transactions are expected to be completed by December 2021.

The Government on Monday moved one more step forward to hand over Air India to the Tata group with the signing of share purchase agreements.

“Share Purchase Agreement (SPA) signed today by Government with Tata Sons for strategic disinvestment of Air India,” Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM) said in a tweet. This is the second major formality completed for the strategic sale of Air India. Earlier, the government issued a letter of intent to Tata.

After SPA, the conditions precedent would need to be satisfied by the successful bidder, the company and Government. It is expected that the transaction will be completed by December 2021. Once completed, the government will get over ₹2,500 crore from Tata, while later will book the remaining amount as debt.

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On October 8, the Finance Ministry declared Talace Pvt Ltd, a wholly-owned subsidiary of Tata Sons Pvt. Ltd as the highest bidder for 100 per cent equity shareholding of Government of India in Air India along with equity shareholding of Air India in Air India Express Limited (AIXL) and a joint venture of Air India-Singapore Airlines (AISATS). The winning bid was for ₹18,000 crore as Enterprise Value (EV) consideration for Air India (along with AI’s shareholding in AIXL and AISATS).

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Thedisinvestment of Air India and its subsidiaries commenced in June 2017 with the ‘in-principle’ approval by CCEA. The first round did not elicit any Expression of Interest. The process was re-commenced on January 27, 2020 with the Preliminary Information Memorandum (PIM) and request for Expressions of Interest (EOI).

The timelines had to be extended on account of the situation arising from the Covid-19 pandemic. In view of Air India’s excessive debt and other liabilities arising out of huge accumulated losses, the bidding construct was revised in October 2020 to EV to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition.

The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15 per cent for equity. As per the original and revised construct, all non-core assets (land, buildings, etc.) are to be transferred to AIAHL and are not a part of the transaction. It has been ensured that the interest of the employees and retired employees would be taken care of, the government said.

Published on October 25, 2021

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