LIC exits Air India debt at a profit, sells back entire Rs 3,800 cr holding
Government-owned insurer, Life Insurance Corporation of India has exited its entire investment in Air India’s debt instruments just before the airline is being handed over to the Tata group on Thursday as part of government’s privatisation programme.
As per a banking source, LIC sold its entire holding of Rs 3,800 crore back to the airline after the latter offered to prepay debt worth Rs 12,900 crore to the investors. “LIC, which has invested Rs 3,000 crore, exited at a premium and will not invest in the airline in future as it will now be owned by a private limited company,” said a source close to the development.
Air India was a triple A rated entity and its entire debt was backed by the government of India. LIC and State Bank of India were top investors in Air India’s debt. The airline was offering interest of between 9 per cent and 10.5 per cent on these debentures thus leading to a substantial outgo for the airline. The airline prepaid the NCDs in its efforts to reduce its debt before the handover.
Talace Pvt, a subsidiary of Tata Sons Pvt, is taking over Air India, at an enterprise valuation of Rs 18,000 crore. Of this, Talace Pvt will be taking over Air India’s standalone debt of only Rs 15,300 crore while the rest will be given to the Government of India as equity value.
Lenders said Tata Sons is also a triple A rated company but LIC will not be able to invest as the IRDA (Insurance Regulatory and Development Authority) regulations bar investment by insurance companies in private entities. LIC had earlier exited from Tata Sons debt instruments citing the IRDAI norms after Tata group’s holding company became a private entity.
As per Air India’s standalone numbers for the first half of current fiscal, the airline reported total income of Rs 5,249 crore and a loss of Rs 5,422 crore. The airline had a negative net worth of Rs 49,967 crore and paid a finance cost of Rs 2,040 crore for the half year ended September 2021. On a consolidated basis, Air India had debt of Rs 62,361 crore as on March 2020. Air India will also be transferring debt worth Rs 46,262 crore to another government-owned entity, AIAHL along with buildings and other real estate across the country.
Lenders have also agreed to extend loans worth Rs 23,000 crore to Talace Pvt at an interest rate of 4-5 per cent per annum. The Tata group will use these funds to replace the Rs 15,300 crore of debt it will take over and use the rest to invest in the airline’s operations. With Air India’s finance cost coming down substantially, it will be easier for the Tata group to turn around the airline, say lenders.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
