Indigo in talks to raise ~3,000 crore
Airline wants to secure long-term future during pandemic
India’s largest airline Indigo is in talks to raise fresh funds while travel demand has collapsed during the pandemic, according to people with knowledge of the matter.
The company, with more than a 52 per cent share of the domestic market, is looking to raise around ~3,000 crore to augment long-term future and strengthen its balance sheet.
In its discussion with banks, the airline is exploring the possible route of fundraising. It could either be through a qualified institutional placement or a rights issue.
The company may also tie up with banks for debt. This would allow it to borrow according to requirements.
“There is no immediate requirement of cash for the company. Current liquidity is enough to see it through till 2021-end. But it is thinking long term and preparing for a scenario in case the impact of the pandemic lasts longer,” said a person in the know.
A company spokeswoman refused to comment, terming it “speculation”.
At the end of March 31, Indigo had a cash reserve of ~20,400 crore, of which ~8,900 crore was free cash. But, the reserve has been hit hard due to the lockdown, with about 40 per cent costs like lease rentals, maintenance cost of aircraft, and salaries fixed in nature.
A company executive said the airline’s daily expenditure was ~40 crore during the lockdown. That has now reduced due to improved business and cost-saving measures.
Simultaneously, the company has initiated other processes like sale and leaseback of 13 aircraft owned by it, negotiating with lessors and vendors to bring down the rates. Not paying dividend for 2019-20 is another step to shore up cash reserves. The airline is also replacing older A320ceo aircraft with A320neos, which will bring down maintenance cost.
“Sale and leaseback, along with phasing out of older planes, renegotiation of contracts, and non-payment of dividend, would yield ~3,000-5,000 crore of additional liquidity for the airline,” Indigo’s Chief Executive Officer Ronojoy Dutta recently told Business Standard.
“The fundraising is to strengthen the company’s capital buffers and liquidity, so that it is well-fortified to deal with any potential longterm disruption. What if there is a second wave of the virus tomorrow prolonging the recovery? The company needs to be prepared for that,” said a second person.
The airline does not expect a complete recovery of the Indian domestic aviation market before the second half of 2021.
Airline lobby group International Air Transport Association had warned last week that the recent growth in the number of Covid19 cases was likely to harm recovery of air travel. Despite pandemic’s severe impact on the aviation sector, analysts have largely been bullish on Indigo with an expectation that its weaker rivals will shrink further, leading to an increase in the market share of the airline. The airline, in contrast to its rivals, has continued to take delivery of new aircraft, inducting eight planes since the lockdown ended. “We remain positive on the stock due to a healthy balance sheet, improving cost advantage over peers, and a possible market-share gain in 2021-22. Indigo has several support levers for generating liquidity, which will ensure sustainability in a Covid-impacted 2020-21,” Ansuman Deb and Ravin Kurwa, analysts at ICICI Securities, observed in a recent note. Several blue-chip firms like RIL and HDFC Bank are tapping the market to raise cash and beefing up reserves as the pandemic increases uncertainty for business. “Forward-thinking companies will raise funds well ahead of time to strengthen their balance sheet. In a tough environment like this, capital is more likely to gravitate towards well-governed market leaders in the respective sectors,” said Samir Sheth, partner and head, deal advisory services, BDO India.
Markets regulator Securities and Exchange Board of India had recently relaxed pricing methodology for preferential issue of shares to make fundraising easier for companies.