The land monetisation exercise of Air India will not be able to reduce the airline’s debt burden by more than Rs 8,000-Rs 9,000 crore, people aware of the development told CNBC-TV18. The process is also expected to be time-consuming as it is likely to be spread across a period of 3-4 years, sources added.
CNBC-TV18 had reported on November 11, quoting government sources, that the government has accounted for nearly Rs 14,000-15,000 crore from land monetization of Air India and is mulling to waive off the airline’s payables to airports and oil companies.
The proceeds from land monetisation were expected to help in reducing the debt burden of Rs 29,464 crore which has been transferred to a special purpose vehicle called Air India Asset Holding Company but the latest assessment indicates that the relief would not be as expected and not immediate.
The Cabinet Committee on Economic Affairs (CCEA) had approved a financial restructuring and turnaround plan for Air India in 2012. Under this, monetisation of real estate assets in Air India to the tune of Rs 5,000 crore was also approved over a period of 10 years with an annual target of Rs 500 crore from 2012-13 (April-March) onwards. However, as against the annual target of Rs 500 crore, the airline has been able to generate only Rs 700 crore so far by the sale of 37 out of 111 land parcels. These also included five overseas properties in Hong Kong, Tokyo, Nairobi, Mauritius, and London.
“The sale of freehold properties has been taking place on state-owned auction site of MSTC. It has been smooth because there was no conflict about ownership of these properties. In a lot of cases, Air India does not have the lease documents and in those cases, it is becoming difficult to sell to a private player so a government-to-government transaction is being worked out for those properties,” a person aware of the development said.
It is interesting to note here that the big-ticket land assets of Air India are all those for which the airline does not have lease documents as post the merger between Indian Airlines and Air India, a lot of paperwork was lost, sources added.
As a result, the 16,188 square meter land at the prime location of Delhi’s Baba Kharak Singh Marg near Connaught Place and staff quarters spread over 30 acres at Vasant Vihar have been transferred to the urban development ministry. The urban development ministry via NBCC is expected to monetize these assets but the entire process may take at least 3-4 years.
“We are expecting Rs 5,000 crore from these two properties. These will account for 55-60 percent of the total proceeds that we are expecting,” another source said.
After these two properties, the next prime asset is the landmark building of Air India at Nariman Point in Mumbai.
“There were talks with LIC, JNPT earlier. LIC was offering around Rs 950 crore for Nariman Point building while JNPT was offering Rs 1,200 crore. Maharashtra government was very keen to take over the Nariman Point building for office purpose and it quoted the highest bid after several rounds of negotiations. The aviation ministry has been in talks with the state government and it may be sold for around Rs 1,400 crore,” a source said, requesting anonymity.
Air India also owns a residential plot at Nerul but owing to issues pertaining to documentation, it is relying on CIDCO (City and Industrial Development Corporation of Maharashtra) for its sale. However, the process may take at least 1-2 years and will be able to generate approximately Rs 1,000 crore, sources said.
Cushman & Wakefield have been the advisors to Air India for its land monetization exercise.
In order to make the second attempt at the airline’s divestment lucrative, the government has been planning to take away as much debt from Air India’s balance sheet as possible.
CNBC-TV18 reported this first on September 6.
Last year, the government had failed to sell Air India when it had offered 74 percent stake. While a lot of parties had shown interest, none of them actually submitted bids. Some like IndiGo suggested that they weren't comfortable in a joint venture with the government. This year, it is expected that the government has expressed intent to sell 100 percent stake in the debt-ridden carrier and is expected to sell Air India only with debt against assets.