Government may keep IPO rider in Air India strategic sale, use it to exit in 3-5 years

The government could make it mandatory for the eventual buyer of Air India to list the airline on the stock exchanges in 3 to 5 years, an official familiar with the development told Moneycontrol. In case the majority shareholder refuses to launch an initial public offering, the government may want to keep the option of selling its stake via a public offering.

A clause giving the government the freedom to do so may also be included in the expression of interest (EoI) that will be released soon, the official said.

“Most likely, the government will keep 26 percent stake in Air India and Air India Express that will be sold as one unit. The government would expect the new owner to turn around the airline in three to five years. If for some reason, the private company is not able to launch an IPO of the airline, the government will want to have the option to do the same on its own and exit,” the official said.

A 26 percent stake would give the government a seat on the board of the company and thus some say, in its running.

The Specific Alternate Mechanism, a group of ministers looking into the modalities of the Maharaja’s divestment, met on March 20 to discuss the final contours of the EoI. Finance Minister Arun Jaitley heads the panel that is assisted by consultants EY and SBI Capital Markets. The EoI will be a document soliciting participation of private sector companies that are interested in bidding for the airline.

The government is planning the divestment of Air India group, the largest strategic sale of an Indian public sector company in phases. It will begin with that of the parent airline along with Air India Charters, one of its five arms. The divestment process of the parent and its subsidiaries will have separate EoIs, an official had earlier told Moneycontrol.

Besides Air India Charters, Air India's subsidiaries include Air India Air Transport Services, Air India Engineering Services, Airline Allied Services and Hotel Corporation of India. It has a 50:50 joint venture in Air India SATS Airport Services along with Singapore Airport Terminal Services to provide ground handling services to airlines at certain metro airports.

The parent and its subsidiaries are provided ground handling services at more than 60 airports by its arm Air India Air Transport Services as well. Another arm, Air India Engineering Services, offers maintenance, repair and overhaul services to Air India and its units besides some other carriers as well.

While the government remains committed to privatising the airline and Minister of State for Civil Aviation Jayant Sinha has reiterated his stand in the past that Air India would be in private hands by December, time seems to be running out in the government's efforts.

The airline's 2016-17 accounts are still under audit even as another financial year – 2017-18 – is drawing to a close. Being an unlisted loss-incurring company, Air India has generally been late in preparing its accounts.

A new buyer will need the latest audited financial statements to decide on bidding for the airline or not. If the divestment doesn’t happen by December, then it is certain that it will be deferred until the next financial year as elections are due April-May 2019.