Tata group negotiates Airasia India exit price

Malaysian airline gets $54-million offer from a foreign fund

The Tata group and Airasia Berhad (AAB), led by Tony Fernandes, are discussing the latter ’s exit from Airasia India even as the Malaysian airline is getting a $54-million firm offer from a foreign fund.

If the Tata group, which has the right of first refusal (ROFR), declines to buy AAB’S 49 per cent stake, Airasia Berhad will sell the stake to the fund.

“Apart from buying the 49 per cent stake from AAB, the fund is ready to pre-pay high-cost, short-term loans taken by Airasia India from Deutsche Bank, HSBC, and Tata Capital. This will help Airasia India lower its finance costs as it is paying a steep interest rate of 11.25 per cent on these short-term loans,” said a source close to the development. The foreign fund has made it clear it will invest only if it gets a noobjection clearance from Tata Sons.

Tatas have invested in Airasia India’s optionally convertible debentures worth ~550 crore, which, when converted, will increase Tatas’ stake to 60 per cent from 51 per cent. An email sent to Airasia Berhad and the Tata group did not elicit any response.

For both the Tatas and Airasia Berhad, the exit of the latter is necessary because the former want to consolidate their stake in the low-frills carrier, while AAB requires money back home in Malaysia, where it is facing a tough financial situation owing to the pandemic. Another big hurdle faced by Airasia in India is the investigation by the Enforcement Directorate and the Central Bureau of Investigation into alleged bribes paid to get airline permits. The foreign investors are planning to seek immunity from any investigation if they invest in Airasia India.

“The ball is now in the Tatas’ court. AAB can give 30-day notice to the Tatas and then it can sell the stake to a third party. With a $54 million offer, there is a benchmark price for further negotiations,” said a banker close to the development. The Tata group is running two airlines in India — Vistara and Airasia India — and there are reports that it is interested in bidding for Air India.

Both Vistara and Air India are making huge losses. In FY21, like Airasia India, Tata SIA Airlines, the operator of Air Vistara, received equity infusion of ~500 crore from both partners in April.

The pandemic has hit both airlines, with Airasia India reporting a loss of ~330 crore in the March quarter on revenues of ~928 crore. This is against a loss of ~147 crore on revenues of ~631 crore in the March quarter of 2019.