Air India privatisation: Bids allowed on basis of enterprise value

Addressing the concerns expressed by potential buyers amid fresh uncertainties caused by Covid-19, the Centre on Thursday changed bidding norms for privatisation of loss-making Air India by allowing bids on the basis of its enterprise value (EV).

The buyer won’t need to accept any pre-determined level of debt, but will require to pay 15% of EV quoted by it in cash.

The enterprise value to be quoted (market value of debt and equity) will comprise at least 15% in cash payment to the government and debt takeover by the bidders equivalent to 85% of the value quoted, aviation minister Hardeep Singh Puri said.

Bidders can even quote to pay 100% in cash to the government, department of investment and public asset management secretary, Tuhin Kanta Pandey said. A higher cash payment by the buyer will bolster the government disinvestment receipts in FY21, but increase the burden from taking over of full or part of the AI debt.

Under the earlier plan, the buyer was required to take over the airline’s estimated residual debt of Rs 23,286 crore. As transaction adviser, EY had earlier among other options suggested that the debt level be brought down to Rs 17,464 crore, without additional changes in bidding construct. It had cited the prevailing situation in the domestic and international aviation industry and worsening of AI’s performance.

In order to give some time to bidders to finalise their plan of action and filed queries, the deadline for submission of expressions of interest (EoIs) has been extended from October 30 to December 14. The qualified interested bidders will be intimated by December 28 and given some time for submission of financial bids. The Centre is keen that the transaction be closed by March 31, 2021.

The above changes are in line with the transaction adviser’s suggestions, which was agreed to by the inter-ministerial group (IMG) headed by Pandey.
However, the government did not take any decision at this stage on the TA’s suggestion that the winning bidder may have the leeway to cut its workforce immediately after the acquisition.

The EoI provides for a one-year job protection for the state-owned airline’s over 9,600-strong permanent workforce. Also, the adviser sought removal of the Rs 1,000-crore cap on asset sale in the first year post-acquisition of AI by the buyer. Sources said these issues will be addressed at the time of request for proposal (RFP) stage.

With Covid-19 hitting the aviation sector hard, Air India has estimated that its cash losses would rise 80% on year to Rs 6,000 crore in FY21. Air India CMD Rajiv Bansal on Thursday said the carrier’s losses could be around Rs 8,000 crore in FY21.