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Govt to sweeten Air India deal; bidders may get to bid on enterprise value with flexibilities

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Unable to find suitors, the government is now considering sweetening the Air India strategic sale deal. According to sources, the inter-ministerial group, headed by disinvestment secretary has presented five options to the top government to pave way for a smooth and early deal.

Govt to sweeten Air India deal; bidders may get to bid on enterprise value with flexibilities
Unable to find suitors, the government is now considering sweetening the Air India strategic sale deal. According to sources, the inter-ministerial group, headed by disinvestment secretary has presented five options to the top government to pave way for a smooth and early deal.
The proposal that could soon be cleared by the government, is likely to provide a fresh breather for the Air India bidders, by allowing them to have an option where bidders can quote combined debt and equity as Enterprise Value, with flexibilities in timelines, assets and employees base, sources added.
The move came after COVID-19 pandemic had a huge impact on the aviation sector and similarly on the financial health of Air India. Thus, to ensure that the government takes the right steps at the right time to keep the strategic sale process going on, the transaction adviser of the deal has presented a fresh view to the government.
“As per the advice of the transaction adviser, the inter-ministerial group has informed the core group of secretaries on disinvestment, to speed up the process of Air India strategic sale. The IMG on Air India divestment has requested the core group headed by Cabinet secretary to analyse these 5 options at the earliest,” sources added.
The core group of secretaries on disinvestment is slated to meet on September 18 and would keep this issue as top agenda, sources added.
The five options that have been suggested by the inter-ministerial group along with the transaction adviser are: “Firstly to consider no change in the debt levels, only an extension of timeline of bid submission can be made available, secondly, debt level to be reduced from Rs23,286 crore and asking bidders to submit bids in existing time frame. The third option, which is the most favoured option so far, is that no fixed debt level should be there rather bidders can be asked to quote combined debt with equity value as an enterprise and this enterprise value, with associated changes in timelines by additional 45-60 days to submit EOI and asset, employee related flexibilities.”
The other two options are, “Either government continues to run Air India operations for next 2-3 yrs without privatisation or considers winding up of Air India business under IBC process.”
Recently, aviation minister Hardeep Puri had said that he was not in favour of any more extensions to bid deadline. On September 3, Puri said that “Would not have given even this extension on Air India stake sale, but did so on the request of bidders. I would like to give an emphatic ‘NO’ to further extension for tendering the expression of interest (EOI) for Air India stake sale. I would have liked to close the EoIs by 31st August but I was advised to extend it by 2 months. This will be the final 2-month extension to Air India stake sale process.”
Puri was confident that Air India stake sale process will be complete by the end of 2020 and he has seen strong interest for Air India stake from entities within India, from NRIs and foreign entities. He also added that there was sufficient number of bidders for Air India stake to make it a competitive bid.
Meanwhile, when it comes to the option favoured by the government, it will also give some flexibilities.
“The enterprise value should not have fixed debt levels. This will be coupled with additional 45-60 days flexibility in the timeline for submitting EoI with asset sale & employee related flexibilities. Government is considering addressing the employees’ related issues at a later stage of RFP which will be covered in the share purchase agreement. Rather government will clarify to the bidders that asset sales related provisions would be covered in the definitive agreement stage and the government will also keep flexibility to decide assets sale depending upon market situation,” sources added.
Now, it is to watch out for what the core group of secretaries decides for the ailing airline.