Air India to offer NCDs at 8.5%, banks clear restructuring

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Air India to offer NCDs at 8.5%, banks clear restructuring

Amidst rising concerns of NPAs, a 13-bank consortium led by the SBI on Friday approved a CDR scheme for the debt-ridden AI. Under the plan AI will continue to pay interest rate on Rs 18,000 crore loans and repay the principal at a later date. It will also provide relief to banks as they will not have to classify the loan to AI as NPA.

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Moneycontrol Bureau

Amidst rising concerns of non-performing assets (NPAs), a 13-bank consortium led by the State Bank of India (SBI) on Friday approved a corporate debt restructuring (CDR) scheme for the debt-ridden Air India (AI). Under the plan India's national carrier will continue to pay interest rate on Rs 18,000 crore loans and repay the principal at a later date. It will also provide relief to banks as they will not have to classify the loan to AI as NPA.

Also, the consortium has decided to extend fresh credit of Rs 2,200 crore at an interest rate of around 10-11%.

"Most of the clauses mentioned in the scheme earlier remained unchanged. It is just that AI will be issuing non-convertible debentures instead of cumulative redeemable preference shares. Those debentures will offer a coupon of 8.50%. Banks now need to take their respective board's approval to put the final seal on the restructuring plan," a top bank official told Moneycontrol.com on condition of anonymity. His bank is one of those 13 lenders.

The proposed NCDs will be supported by a sovereign guarantee (to be provided by the government of India being its major stake holder in AI). It would mop up around Rs 7,400 crore out the total restructured value pegged at Rs 18,000 crore. These bonds will be subscribed by financial institutions who are averse of buying this type of bonds without government guarantee.

The Reserve Bank of India (RBI) has set a deadline of March 20 for the restructuring plan. Within the time, everything including the government's approval has to be finalized.

"We do not need RBI's approval for the terms and condition (of restructuring). However, we may have to approach the regulator to give a little relaxation on the deadline side. NCDs may not be issued before March 20," said a banker who did not wish to be named.

Earlier in the day, Moneycontrol.com had spoken to one of the RBI officials on this.

"RBI is not supposed to give approval to banks' debt restructuring scheme for Air India. At the most, banks can request the regulator for not treating AI account as non-performing asset even if it stops repayment after 90 days. If AI remains a standard asset, banks can extend further credit to it," said the official adding that the regulator would consider NCDs issue under the auspices of a sovereign guarantee.

AI credit exposure to banks was perceived to be a major trigger for the asset quality of those lenders in the Jan-March quarter. The settlement of the CDR issue on this count would augur well for banks shares, beaten down on concern of NPAs.

saikat.das@network18online.com