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LIC, EPFO to pick up Air India's Rs7,400 crore bond issue at 9.08%

Wednesday, 21 November 2012 - 3:46pm IST | Place: Mumbai | Agency: PTI

Air India will have to use the proceeds from the sale of the non-convertible debentures to retire a good part of short-term working capital loans taken from 19 different banks.

The Life Insurance Corporation of India (LIC) and the Employees' Provident Fund Organisation (EPFO) have agreed to fully subscribe to the Rs7,400 crore bond sale of national carrier Air India, a top SBI Caps official said here today.

"Life Insurance Corporation and the EPFO have agreed to purchase the entire Rs7,400 crore non-convertible debentures (NCDs) being sold by Air India. However, the bond sale programme will continue to remain open till December 18," a senior official of SBI Caps, which is the sole arranger to the issue, told the Press Trust of India on condition of anonymity.

The issue has a coupon of 9.08% and will fetch 9.27% for LIC and the EPFO on maturity after 19 years, he added.

According to an Air India official, LIC has subscribed to bonds worth Rs3,000 crore and the remaining have been purchased by the EPFO.

When contacted, Air India finance director S Venkat refused to talk, saying only the spokesperson could comment. Calls to the spokesperson did not elicit any response.

The NCD issue is part of the revival plan of the debt-laden national carrier, which was given a Rs30,000 crore bailout by the government in April.

Accordingly, Air India will have to use the NCD proceeds to retire a good part of short-term working capital loans taken from 19 different banks.

The bailout package also included an upfront equity infusion of Rs6,750 crore and an assured equity support of Rs23,481 crore until 2020-21.

As of last December, Air India had a debt of Rs43,777 crore on its books and an accumulated loss of Rs27,000 crore from the past five years.

The debt includes loans taken for purchasing 27 Boeing Dreamliners, of which only three have been delivered so far, and nearly 60 other planes from Airbus.

The issue has an AAA rating from India Ratings, the domestic services of Fitch, reflecting the unconditional guarantee extended by the government to make timely repayment of principal and interest on the bonds.

India Ratings had said in a statement, "The proceeds of this NCD issue will be used to repay outstanding Rs73,91.67 crore short-term bank loans, interest thereon, as well as expenses in relation to the issue of the debentures and the government guarantee fee as may be applicable."

The NCDs were issued early this month and have a tenure of 19 years, with principal redemption in five equal instalments starting from the 15th year and interest payments being made biannually, the rating agency said.

The NCD issue is a part of the government's restructuring plan for reviving the airline. The cabinet committee on economic affairs (CCEA) had on April 12 approved a financial restructuring plan for the airline, which included the issuance of the NCDs.

The bonds will be issued in three tranches — Series I of Rs3,000 crore, Series II of Rs1,000 crore, and Series III of Rs5 crore, according to India Rating.

In all three tranches the issuer has the option to retain additional subscription such that the total amount mobilised does not exceed Rs7,400 crore, the agency added.

The airline has to turn cash-positive by next fiscal and post a net profit by 2020, and SBI Caps is working on the revival plan for the airline.

Last week, the airline failed to sell four Boeing 777s as it did not find any takers.

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