Stiff norms, big names at Air India divestment transaction advisor pre-bid meet

Some of the biggest names in the investment banking community attended the September 25 pre-bid meeting for the appointment of transaction advisors for divestment of government’s stake sale in Air India, according to a person familiar with the development.

These included officials from KPMG, EY, Deloitte Touche Tohmatsu, Rothschild & Co, McKinsey & Co, SBI Capital Markets, BNP Paribas, Kotak Mahindra Capital Company, Edelweiss Securities and ICICI Securities.

“Two things will keep smaller names away. One is that this will be bigger than any other divestment carried out by any government so far. Also, the request for qualification for appointment of the advisor lays down the condition that the bidder should have handled a transaction of at least Rs. 4,000 crore during April 1, 2012 and June 30, 2017. Not many people would have done a transaction of that size,” one of the interested bankers told Moneycontrol.

The government will appoint two transaction advisors for the divestment process. The last date to submit the bid is October 12.

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The government has ‘in-principle’ decided to disinvest AI as a whole or its constituents fully or part thereof through strategic disinvestment with transfer of management control. The airline operator has five subsidiaries and one joint venture.

Also read: Cabinet gives OK to strategic sale of Air India, panel to study various options

The airline made a loss of Rs. 4,310.65 crores in 2015-16. This was on top of a loss of Rs. 6,280.42 crores in 2014-15. The wholly state-owned company is weighed down by a debt of around Rs. 52,000 crores.

The government’s rules on foreign direct investment permit 100 per cent FDI in an airline with a foreign airline not allowed to hold more than 49 per cent in an Indian carrier.

So far, Interglobe Aviation which runs IndiGo, is the only carrier to have officially expressed its intent to buy the airline.

While the final contours of the divestment will be known only after all the stakeholders – the government, transaction advisor and interested suitors deliberate on buying the whole or parts of the airline – it is certain that the government will have to absorb AI’s debt to have any private sector company acquire the loss-making airline. A special purpose vehicle will also be formed in which all the real estate and artefacts of the airline will be housed, according to a ministry official.