Bidding for Air India to be at enterprise value
The Ministry of Civil Aviation last week announced its decision to revise the bidding parameters for Air India's disinvestment. Union Minister Hardeep Puri declared that the bids for the sale of the financially beleaguered national airline would be taken at enterprise value. These new parameters provide more flexibility to the bidder and will allow them to decide on the amount of debt on the Air India books that they would like to absorb. The decision was finalized by the Air India Specific Alternative Mechanism (AISAM) after a meeting with the home ministry.
The government has been actively attempting to sell its 100 per cent shareholding in Air India along with Air India's 100 per cent holding in Air India Express and 50 per cent share in Air India-SATS, a joint venture with Singapore Airport Terminal Services (SATS), due to the escalating debt and mounting losses. They announced the stake sale in January, after an attempt to auction a majority stake failed to draw any bid. The airline's total debt is estimated to be more than Rs 690 billion and recorded a net loss of Rs 53.48 billion in FY18 and Rs 85.56 billion in FY19.
Earlier, bidding was sought only on the equity value. Experts believe that these new parameters will allow the prospective bidders to determine the capital structure of the company. In the current PIM, the successful bidder would have to take on a debt of Rs 232.86 billion as opposed to the 2018 offer, which required them to take on over Rs 330 billion worth of debt.
Interested bidders can choose to designate a lower percentage of the enterprise value to be retained in the form of debt and instead offer the same amount in the form of a higher monetary consideration to the government for the acquisition of 100 per cent equity share capital.
"In this enterprise value also, a ratio has been earmarked between how much a bidder can take as debt and how much (s)he has to give as cash. It has been decided that whatever enterprise value the bidder quotes, 15 per cent of that has to be given in cash to the government and remaining 85 per cent has to be taken as debt," Aviation Secretary Pradeep Singh Kharola explained further.
Minister Hardeep Puri also affirmed the 15 per cent clause saying, "The 15 per cent clause is necessary because it is necessary (for bidders) to show their skin in the game."
After the announcement, the government further extended the deadline for inviting bids until 14 December for the 5th time since January to give the investors more time. The Centre declared the deadline extension of two months until October 30 for the submission of expression of interest. The notification was issued due to several persistent requests from interested bidders due to the Covid-19 pandemic. The minister also mentioned that more than 500 queries were received from enthusiastic bidders when the process began back in January.