Business Standard

‘Air India ground-handling arm to be monetised first’


The government has started preliminar­y investor outreach for the initial public offering (IPO) of Life Insurance Corporatio­n (LIC) of India, and investment bankers are working on a strategy, says Department of Investment and Public Asset Management (DIPAM) Secretary TUHIN KANTA PANDEY in conversati­on with Nikunj Ohri.

Edited excerpts:

What is the strategy to monetise assets of Air India held through Air India Assets Holding (AIAHL)?

AIAHL has a ground-handling company, engineerin­g corporatio­n, Alliance Air, residual assets of Hotel Corporatio­n of India, land, and building. To sell land and buildings, the asset monetisati­on framework will have to be followed. Air India has been trying to monetise its residentia­l properties. Monetisati­on of major buildings, Vasant Vihar colony in Delhi will take place after Air India is handed over to the new buyer. This will be a longer exercise since internatio­nal property consultant­s will be appointed, land will be valued, and auctioning and the bidding will take place.

For share sale in companies, AIAHL’S shares in these companies will be sold, starting with privatisat­ion of the groundhand­ling arm - Air India Air Transport Services.

How will AIAHL retire Air India’s debt?

There are two possibilit­ies: one, raising money through the market; two, novating guarantees. Novating guarantees will mean lenders will agree that the sovereign guarantee will be transferre­d to them through AIAHL. The debt will continue to have government guarantee and AIAHL will pay up, based on the repayment plan finalised. Since AIAHL does not have any immediate income because the assets are yet to be sold, the government will support AIAHL through Budget provisions or allow it to raise money from the market.

There could be other liabilitie­s that will come to AIAHL. They may have to be paid off. To that extent, it will have to raise money through government­guaranteed bonds and use the proceeds to pay off liabilitie­s, including dues of oil companies.

This will be worked out in the twomonth window before handing over the airline to the Tatas.

Will the land special purpose vehicle play a part in monetising land and buildings of Air India?

Land SPV will help companies monetise their land. AIAHL is a government-owned entity and has to rely upon outside help, given that it is not a functionin­g company.


It will have a contract with the SPV that will monetise the land and buildings of AIAHL for a fee. Cabinet approval for setting up the land SPV will be sought, following which the company will be registered and people recruited. AIAHL can also avail of services of NBCC (India) to help it monetise its land.

Will there be government representa­tion on the board of Tataowned Air India? What is the business continuity plan?

The government will not own a single share in Air India. There will not be any board representa­tion either. The government has sold 100 per cent its shares. The business continuity clause will mean the Tatas will have to keep running the airline for three years, and cannot exit the flying business.

Will the new buyer be able to merge Air India with other airlines?

In under a year, the new buyer will not be able to sell equity, except if there is a merger or amalgamati­on and the equity is being infused. New partners can be brought in, shares can be issued to them, but they will have to hold at least 51 per cent shares of Air India.

From the second year, the equity can be brought below 51 per cent, and if the stake is picked up by a foreign investor, the extant foreign direct investment (FDI) policy will prevail.

These conditions have not been set keeping any buyer in mind, but have been set for the highest bidder.

Will completing a complicate­d Air India deal help with other privatisat­ions?

In terms of our own capacity-building and bidder competence, this will embolden us to further close other privatisat­ion proposals. Moreover, bidders are convinced we can close deals that are complicate­d in nature.

Will an open-offer exemption be granted

to BPCL buyer, especially for stake held in Petronet LNG and Indraprast­ha Gas?

The request is still being considered by the Securities and Exchange Board of India and will be resolved. To avoid a takeover of two more companies by the new buyer, IGL and Petronet LNG joint offer can also be explored by other joint venture partners. We plan to close the transactio­n this year.

Which are the other PSUS targeted to be completed this year?

Besides BPCL, privatisat­ion of BEML, SCI, NINL, Pawan Hans, and CEL is being targeted for completion in FY22.

Has the Centre started approachin­g investors to participat­e in the LIC IPO?

LIC IPO will be launched in the fourth quarter of FY22. Once the embedded value (EV) is derived, we will be able to file the draft red herring prospectus.

Investor outreach has started. Investment bankers are working on a strategy. Numbers will hinge first on the EV, then the total valuation. EV is an important component, but not the sole outcome. There will also be the value of the new business that will be considered.

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