Air India’s proposal for a financial restructuring got another shot in the arm last week when the Reserve Bank of India (RBI) agreed to increase the period of provisioning of earnings from its cumulative preference share (CPS) issue to banks.
Official sources told DNA Money the provisioning period for earnings from the CPS issue has now been extended by five years to 20 years.
Also, the coupon rate — dividend that accrues to these lending banks for the Rs7,700 crore debt they will advance in lieu of the CPS —- has been fixed at 8-9%.
This may be good news for Kingfisher Airlines, too, since a similar provisioning concession may be allowed for it by lending banks in future.
“As per Air India’s turnaround plan, the airline becomes profitable only by 2018-19. The dividend which accrues to these banks at that time will be at the rate of 8-9%. The rate has been decided now so that proper provisioning may be done by the airline straight away,” the sources said.
The CPS issue will be subscribed by the consortium of lenders led by the State Bank of India. The shares do not have voting rights and lenders won’t get a seat on the board of directors in lieu of these. Also, Air India will be paying no interest on the loan thus adjusted. This will bring down Air India’s interest outgo on aircraft loans.
Banks will get to reduce their non-performing assets in proportion to the shares allotted and will be paid a dividend whenever the airline turns profitable.
Air India has `22,000 crore of aircraft loans and has been waiting for a package from the RBI to reduce its interest payout burden.
Apart from SBI, the bigger lenders to the carrier include Bank of India, Punjab National Bank, Bank of Baroda, HDFC Bank and the Central Bank of India.
The cumulative preference shares will be issued on a pro-rata basis on the loan outstanding. The RBI has also agreed to allow a longer repayment period of 15 years (against 10 years earlier) for the remaining aircraft loan of `15,000 crore. As of now, Air India is paying interest at the rate of 12-14% on this aircraft loan, which means an outgo of `2,600 crore annually.
The airline is still hopeful of getting the remaining amount of support by the end of this fiscal —- of the `6,600 crore promised, Rs2,000 crore has already been released.
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There is binding commitment on the part of the government to infuse equity and it will be honoured,” the source said.
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