Govt may issue NCDs of up to Rs 29K cr to clear Air India debt

NEW DELHI: The Centre may issue Non-Convertible Debentures (NCD) of up to Rs 29,000 crore to repay Air India's outstanding working-capital loans that have been taken over by the government as part of the debt-laden carrier's financial restructuring, reported The Economic Times website on Monday.

One of the proposals to quickly lighten the debt load at the national carrier is to issue the NCDs from Air India Assets holding (AIAHL), the company formed to take away the airline's outstanding working-capital loans. The NCDs will come with sovereign guarantees.

"A plan to transfer the debt to a subsidiary, complete with the approvals from the lender banks, is taking a lot of time as various banks have to agree," said a senior government official, who did not want to be named. "AIAHL can issue the NCDs to raise money and repay the outstanding loans to banks… That is being considered."

The NCDs could reduce the debt servicing costs, currently between 9 per cent and 11 per cent, by up to 300 basis points besides speeding up the process to transfer the loan from the books of Air India.

"Another option also is that AIAHL, backed by government guarantees, goes to the market, raises loans from banks and repays the existing lenders," said the official.

The process to take approvals from the various lending banks to transfer the debt is rather tedious, officials told ET, as the boards at the respective lenders must agree. Another implication of the capital restructuring in this manner is that the interest rates on the existing loans would not change after the debt transfer.

"According to norms, the transfer of loans to another company can happen with board approvals from banks but the interest rates cannot change because that would then amount to loan restructuring," another official said, on the condition of anonymity. "But if AIAHL were to issue NCDs or take loans directly from banks, that would bring some relief to interest repayment costs as well."

To be sure, this isn't the first time the national carrier is considering NCDs to retire debt. In 2012, as part of its then debt restructuring plan, the airline had issued NCDs worth Rs 7,200 crore and repaid banks. The NCDs were largely subscribed by Life Insurance Corporation and the Employees Provident Fund Organisation.

After New Delhi could not immediately sell a 76 per cent stake in the carrier, the government decided to transfer Rs 29,000 crore of working capital debt.