Banks grapple with Air India loans as restructuring deferred
* Govt cannot keep on pouring money – minister
* Banks may downgrade Air India account on overdues -
sources
* Await government bailout for the loss-making carrier
* Averse to picking stake as firm cannot service equity
(Adds lenders’ quotes, details)
By Swati Pandey and Aniruddha Basu
MUMBAI, Jan 11 (Reuters) – Indian lenders may have to
downgrade their loans to loss-making state-run Air India
after they deferred a long-pending debt restructuring
proposal, seeking a revision and making it tougher for the
carrier to raise funds, three sources said.
Banks are now expecting the federal government to bail out
the carrier, which has overdues of more than 60 days with some
banks, two of the sources said.
Banks consider an account as non-performing once the
borrower fails to pay interest dues for 90 days.
“Now, the problem is to find funding for Air India. We are
happy to look at short-term debt but it has to be viable,” said
one of the lenders to the carrier.
The national carrier is already burdened with debt worth $4
billion. Banks are reluctant to accept dividend-paying equity in
the airline as part of loan restructuring, because the airline
has been reporting losses since 2007, the sources said.
The lenders were also concerned that provisions worth nearly
$2 billion may hit their profitability if the loan was
restructured.
The restructuring proposal was prepared by SBI Capital
Markets Ltd, the investment banking arm of the country’s biggest
lender State Bank of India.
“The concern is that Air India is not at a stage to service
the equity,” said another of the sources.
In March last year, a consortium of 13 banks led by State
Bank of India picked up a 23.4 percent stake in
Kingfisher Airlines, another loss-making Indian
carrier, at 64.48 rupees a share.
Shares of Kingfisher have fallen a third since and are
currently trading around 22 rupees.
Kingfisher has been struggling to raise funds and service
its loans. Earlier this month, state-run SBI said its loan to
Kingfisher had become non-performing.
“Banks had a bad experience with Kingfisher Airlines
after they took up a stake in it. So they are not
interested,” another source said.
Lenders have turned wary of the Indian aviation sector
because of a series of financial problems plaguing the industry
and are now relying on the government to support Air India with
more funds.
Rising oil prices, high taxes of jet fuel and a fierce price
war driven by high competition have made most Indian carriers
unprofitable.
A government report in December said the total debt of
India’s airlines is expected to hit $20 billion in the year
ending March.
GOVERNMENT SUPPORT
India’s aviation ministry proposes to provide 330 billion
($6.4 billion) rupees to Air India by 2017 as part of the
government’s 12th Five-Year Plan..
But the country’s Civil Aviation Minister Ajit Singh issued
a sharp warning to Air India on Wednesday asking it to become
competitive and rationalise its costs.
“Government cannot keep on pouring money there,” he told
reporters on the sidelines of an event in New Delhi.
Making matters worse for Air India is its disgruntled
employees.
The Aviation Industry Employees Guild, which represents
about 8,000 Air India employees, has threatened to go on strike
from Jan. 14 in protest against a delay in payment of salaries,
the Economic Times reported.
“The ball is now in the court of the government and time is
running out for both the government and the banks,” another
source added.
Air India is seen contributing more than half of the
projected total losses of up to $3 billion for the industry in
2011/12, the Centre for Asia Pacific Aviation has said.
($1 = 51.7 Indian rupees)
(Additional reporting by Henry Foy in MUMBAI; Editing by Rajesh
Pandathil)
Article source: http://www.reuters.com/article/2012/01/11/india-airindia-debt-idUSL3E8CB4YB20120111
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