The government is likely to extend the deadline to bid for Air India till December 14and also give flexibility to a potential investor to decide on the humongous debt with the national carrier, a source said. The deadline to bid for buying out Air Indiaends on October 30.
The flexibility to potential investors on the quantum of the Rs 60,074 crore debt that they want to absorb will replace the current condition of the buyer taking over more than a third of the debt and transferring the rest to a special purpose vehicle. The source said the Air India Specific Alternative Mechanism (AISAM) has cleared the extension of deadline to December 14to give time to potential investors to raise queries on the changes being made in the Preliminary Information Memorandum (PIM).
As per the Air India EoI floated by DIPAM in January, of the airline's total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle. The government is seeking to sell 100 per cent of its stake in the state-owned national airline, including Air India's 100 per cent shareholding in AI Express Ltd and 50 per cent in Air India SATS Airport Services Pvt Ltd.
Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey had said that potential investors in Air India have given feedback that due to the uncertainty created by COVID-19 in the aviation sector, the debt should not be fixed at the Expression of Interest (EoI) stage. The point is what debt is sustainable. There is a point of view that it can be decided by the market rather than we upfront deciding, he said, adding AISAM would take a final call on whether bidding for Air India will take place based on equity value or enterprise value.
A popular valuation methodology for takeover deals Enterprise value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalisation. EV includes in its calculation not only the market capitalisation of a company but also short-term and long-term debt as well as any cash on the company's balance sheet. For the current fiscal year, the budget has pegged disinvestment proceeds at Rs 2.10 lakh crore. This includes Rs 1.20 lakh crore from CPSE share sale and Rs 90,000 crore from a share sale in public sector banks and financial institutions, including the listing of insurance behemoth LIC.
So far this fiscal, Rs 6,138 crore has been mopped up through CPSE stake sale.
Civil Aviation Minister Hardeep Singh Puri also said that the bidding for Air India would be done on the basis of its enterprise value instead of equity value. Enterprise value of a company includes the equity value, debt as well as cash with the company. Equity value measures the value of a company’s shares.
“We have decided to ask for bids for Air India on enterprise value," Puri said at a press conference. Aviation Secretary Pradeep Singh Kharola said at the conference, “The bid will be on the enterprise value… In this enterprise value also, a ratio has been earmarked between how much he (bidder) can take as debt and how much he has to give as cash." It has been decided that whatever enterprise value the bidder quotes, 15 per cent of that has to be given in cash to the government and remaining 85 per cent has to be taken as debt along with Air India, Kharola explained.