Air India plans to raise Rs 5,500 crore through bonds

Air India (AI) plans to raise Rs 5,500 crore (Rs 55 billion) by issuing bonds to a consortium led by the country's largest private sector lender, ICICI Bank, as part of its financial restructuring exercise.

The ailing state-owned carrier will use the money to refinance its high-interest bearing loans taken to finance 21 Airbus A-320 aircraft in 2009.

It hopes the move will help reduce its interest burden by about Rs 180 crore (Rs 1.8 billion) a year.

"The bonds will be floated next month," said a senior Air India official. The 15-year government-guaranteed bonds will have a coupon rate of 9.5 to 9.8 per cent.

Air India is paying interest as high as 13 per cent on some of its loans, including the one from IDBI.

"There will be an interest saving for us, and this will also ease our cash position," the official said.

Short-term working capital loans, which carry an interest rate of 12-14 per cent, account for 45 per cent, or Rs 18,000 crore (Rs 180 billion), of its Rs 40,000-crore (Rs 400-billion) burden. The rest are long-term aircraft acquisition loans.

Air India's annual interest outgo of Rs 3,200 crore (Rs 32 billion) is the main contributing factor in its consolidated loss of Rs 13,000 crore (Rs 130 billion).

ICICI Bank said it did not comment on client specific transactions.

The state-run carrier plans to save as much as Rs 900 crore (Rs 9 billion) on interest costs each year as part of its financial restructuring exercise.

It plans to convert 60 per cent of its working capital loans to long-term loans, with an interest rate of around 10 per cent, and the rest into preference shares. This would save Rs 600 crore, the official said.

Apart from this, Air India is also looking at refinancing a Rs 2,137-crore (Rs 21.37 billion) loan, taken from Standard Chartered Bank to buy three Boeing 777s, and saving another Rs 100 crore (Rs 1 billion) on interest costs.

Last month, Air India Chairman Arvind Jadhav presented the company's turnaround plan to banks. The plan envisages raising revenue by Rs 5,000 crore (Rs 50 billion) by hiving off engineering and ground handling business, and increasing passenger sale revenues, with an improved load factor and reduction in costs by Rs 4,000 crore (Rs 40 billion).

However, bankers are circumspect. They expressed their concerns on some key issues in the turnaround plan - like the stable oil price factored in and utilisation of aircraft being ordered as part of expansion - at a meeting with the airline management on Thursday.

"It's not that the plans are not achievable, but there are concerns," said a senior executive from a public sector bank.

"We have sought clarification from the airline on some of the issues before we decide to give an approval."