AI DIVESTMENT: EY MAY BE SOLE TRANSACTION ADVISOR

Rothschild may walk out citing ‘low transaction fee’

Adisagreement over fee may see EY emerge as the sole transaction advisor for the proposed disinvestment process of state-owned carrier Air India.

Sources aware of the development said that Rothschild did not agree to the fee of 0.2 per cent of the total transaction value, citing it as “too low for such a complex process”. According to the guidelines of the bidding process, the fee quoted by EY, which was highest on the preferred bidders’ list, was set as standard fee for the transaction. EY had quoted 0.4 per cent of the total disinvestment proceeds, reduced by the debt.

According to the rules, Rothschild would have been paid half of the share (0.2 per cent of the total disinvestment proceeds, reduced by the debt). The British multinational bank, which had quoted 1.5 per cent, did not agree to the 0.2 per cent fee. “Rothschild says they will be unable to agree to that amount as the process of Air India disinvestment was too complex,” a senior government official said.

The official said that the rules of bidding cannot be changed after the process is over and EY alone might get the mandate. “EY is likely to be the sole transaction advisor in the process, as Rothschild has signalled to step out,” the official said.

Amitabh Malhotra, co-head and managing director of Rothschild India, refused to comment on the issue. An EY spokesperson was not immediately available for comment.

“The financial bids were too low for such a complicated deal compared to the international benchmark. The process not only includes the property of Air India but also of its five subsidiaries. Despite that, the quotations were low, may be because it will be a marquee deal,” a person, who attended the process, said.

EY and Rothschild were chosen as transaction advisors for the proposed disinvestment of Air India and Cyril Amarchand Mangaldas was appointed the legal advisor after the Department of Investment and Public Asset Management invited expressions of interest for appointing transaction and legal advisors.

The selection was based on a technical round, which had a weightage of 80, and a financial bid, with a weightage of 20. While KPMG, Shardul Marchand Mangaldas and Luthra and Luthra made it to the final round based on the score of technical bids, they were edged out by the winners in financial bidding, as the quoted advisory fee were low. The mammoth deal includes an operating fleet of 142 aircraft, comprising 65 A-320 aircraft, 15 B777 aircraft, 24 787 aircraft, 23 737-800 aircraft and 11 ATRs and four B747 aircraft.

Apart from the main company, five subsidiaries and a joint venture firm have been included in the strategic sale plan. These are its low-cost airline Air India Express; ground-handling arm Air India Air Transport Service; maintenance, repair and overhaul subsidiary Air India Engineering Services; regional connectivity operator Airline Allied Service; Hotel Corporation of India; and Air India’s 50:50 joint venture with Singapore Air Transport Services for ground-handling activities.