Air India debt row: Bankers see threat to credit ratings
Last week saw the Nifty make “Higher tops & Higher Bottoms” which technically means we could see some upside on the Index. Last week’s range for the Nifty was between 4695-4899 and we could test 4975-5025 on the upside.
The consortium of lenders that has rejected the RBI-approved debt recast for Air India (AI) is more worried about their credit ratings and image in global markets than the nearly Rs 10,000-crore provisioning they will have to set aside under the plan, say leading bankers.
And going by this, even if the debt-laden national carrier manages to get a fresh debt recast plan done, it is unlikely to go through with the lenders, unless some basic CDR provisions are given a go by, such as scrapping the provision of tying dividend payment to profitability, whether AI makes money or not, pointed out these bankers.
The lenders are also not happy with the "special treatment" that State Bank got in the CDR proposal, prepared by its own i-bank arm SBI Caps, as despite the fact that most of them do not have as much exposure as SBI, they are forced to shell out much higher than the government-run lender.
The lenders, barring SBI, which has given a Rs 1,100- crore cash-to-credit loan to AI, and therefore a low provisioning of only about Rs 37 crore, are also peeved at the way SBI Caps "short-changed" them in the CDR plan, as those with similar exposure will see a hole as much as Rs 500-700 crore in their balance sheets if it goes through, a senior public sector banker, who sought not to be named, said.
The bankers said it is not the first time that SBI Caps has "goofed up" the loan syndication and CDRs (corporate debt restructuring). In the first place, they were roped into extend loans to companies like AI, Kingfisher Airlines, GTL and Bharati Shipyard, which are all now desperately seeking CDR packages.
The junked Rs 22,500-crore CDR envisages converting Rs 11,000 crore of the working capital into long-term debts ending 2020, and Rs 7,000 crore into cumulative redeemable preferential shares but without an assured return, which will be redeemable from 15th and 20th year onwards.
That apart, it envisages the government infusing up to Rs 30,000 crore into AI over the next 10 years, and the airline selling and leasing back the first 14 of the 27 Dreamliners. The plan will allow Air India to save up to Rs 1,000 crore annually.
The RBI had last November given an in-principle approval to the plan and set a March 20 deadline to complete the process. As a special case, RBI has allowed banks to make provisions for a five-year period instead of the normal three years.
The CDR plan also aims at AI turning Ebidta positive by 2013, cash positive by 2018, and in net profit by 2020. But a senior SBI official, who wished not to be identified, does not buy the "favouritism" argument, saying his is not a term loan as others' are. "Our exposure to AI is a cash-credit facility and not a term loan as most others' are. Since it's fully secured, we have priced it at a cheaper rate too. Similar is the case with HDFC Bank and a few others. And so they too don't have any issue with this CDR proposal," the official said. "
“Of course, I do understand their concerns, as if the plan goes through, it will badly impact their credit worthiness among global lenders and rating agencies, since together they will have to set aside around Rs 10,000 crore as provisions with no guarantees and no assured dividends," he added.
When pointed out that AI is a government-run entity as most of the airline's lenders are, he said, "Banks have their own problems and what another PSU does not bother them." He pointed out the non-feasibility of AI turning into black even after a CDR, saying, "neither there is stability at the airline nor it has sound business model. The biggest worry is that there is no semblance of a management structure at the AI."
The 13 lenders, including SBI, which together have an exposure over 27,000 crore to Air India in working capital loans or short-term loans and another Rs 42,000 crore towards aircraft purchases, had to take a huge hit after they subscribed to the preferential issue from Kingfisher following the CDR thrashed out by SBI Caps in November 2010 and converted their preferential shares into equity.
SBI Caps had been the undisputed leader in loan syndication and debt recast for decades. The lenders now together hold a little 23.4 per cent in the troubled Kingfisher Airlines, which they bought at a hefty premium at Rs 64.48 a share last March, but since then its scrips tanked nearly half. On Friday, the share closed at Rs 23.75 on the BSE.
Another banker with over Rs 570 crore exposure to AI, said banks will not be comfortable if a new proposal is given by SBI Caps and that they will prefer to vet it themselves.
"It seems SBI Caps has become a darling for companies that are under stress and approaching CDR," he averred. SBI Caps Managing Director S Vishwanathan could not be reached for comments despite many attempts.
The GTL case is very special. In June 2010, SBI Caps syndicated a Rs 5,000-crore loan for GTL Infra to pay for Aircel Cellular's tower business. But by September 2011, SBI Caps prepared a CDR proposal for GTL Infra which proposed that lenders convert 25 per cent of the Rs 16,200-crore debt into equity, while the promoters would infuse only Rs 300 crore.