Air India flight. (PC-Shutterstock)
Government officials met the two bidders of Air India for a second consecutive day - September 30 - to discuss the divestment of the airline.
Officials from the Ministry of Civil Aviation, Department of Investment and Public Asset Management, and the Directorate General of Civil Aviation met with officials from the Tata Group and Spicejet Chairman Ajay Singh.
This follows the September 29 meeting of officials with people representing Tata Sons and Singh, who has bid in personal capacity, to discuss the sale of the national carrier.
People in the know have told Moneycontrol that the government has likely set the minimum reserve price for the sale of national carrier Air India at around Rs 15,000 crore. The reserve price set is the price below which the government will not accept offers for the national carrier.
It is not immediately known if Tata or Ajay Singh's bids are above the reserve price or not though media reports indicated that Tata had the higher bid.
Moneycontrol has learnt from a senior official that the reserve price was decided earlier this week, on September 28, when there was a meeting of the committee of secretaries, headed by Cabinet Secretary Rajeev Gauba.
It was at this meeting that a presentation was given and a reserve price was decided, based upon the valuation of the airline, worked out by valuers RBSA Advisors and transaction advisors EY.
As per reports, Tata Sons have sought a sovereign guarantee against any pre-acquisition financial or legal claims that Air India may face.
The reserve price of Air India is based on the valuation of all of Air India’s assets, including its buildings, fleet, international landing slots and working agreements.
The airline’s reserve price has been decided not considering its total debt of around Rs 60,000 crore. This amount is the latest debt figure based on replies by the Civil Aviation Ministry to Parliament.
Bids for the airline were initially to be based on equity value and the successful bidder had to absorb debt of around Rs 23,300 crore.
However, the government changed the bidding norms in October 2019, and sought bids based on enterprise value. Enterprise value represents the market value of an entity, and takes into account its debt and liabilities.
According to the new plan, the successful bidder does not have to absorb any predetermined debt.
This is the second time the government is trying to sell the national carrier. The government had in March 2018 invited expressions of interest to sell its 76 percent stake in Air India, but failed to elicit any response, primarily on account of the airline's huge debt.
The government is of the view that just the sale of Air India and Bharat Petroleum, along with the initial public offering of LIC Ltd, will be enough to meet the 2021-22 divestment target of Rs 1.75 lakh crore.