Bankers outweigh Air India credit rating over provisioning

 

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

Mumbai: The consortium of lenders that has rejected the Reserve Bank of India (RBI)-approved debt recast for Air India (AI) is more worried about their credit ratings and image in global markets than the nearly Rs10,000-crore provisioning they will have to set aside under the plan, reports PTI.

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 corporate debt restructuring (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 of India (SBI) 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 Rs1,100- crore cash-to-credit loan to AI, and therefore a low provisioning of only about Rs37 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 Rs500-Rs700 crore in their balance sheets if it goes through, a senior public sector banker, who sought not to be named, told PTI.

The bankers said it is not the first time that SBI Caps has “goofed up” the loan syndication and CDRs. 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 Rs22,500-crore CDR envisages converting Rs11,000 crore of the working capital into long-term debts ending 2020, and Rs7,000 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 Rs30,000 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 Rs1,000 crore on an annual basis. The RBI had last November given an in-principle approval to the plan and set a 20th March 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 Rs10,000 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 should 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 Rs27,000 crore to Air India in working capital loans or short-term loans and another Rs42,000 crore towards aircraft purchases, had to take a huge hit after they had 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% in the troubled Kingfisher Airlines, which they bought at a hefty premium at Rs64.48 a share last March, but since then its scrip tanked more than half. On Friday, the share closed at Rs23.75 on the BSE.

Another banker with over Rs570 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 Rs5,000-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% of the Rs16,200-crore debt into equity, while the promoters would infuse only Rs300 crore.

 

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COMMENTS

Ratan

5 years ago

Its absolutely right to be conservative & cautius about AI's turn around plan. It definitely has no sound business plan, or strategy. There is no management. It is run by Rajiv Gandhi Bhawan in Delhi by bureaucrats who have absolutely NO CLUE. Even small corrections are not being taken. Till date the management has failed to reduce its staff strength by retiring staff over 55 years and educing its huge wage bill. Even that it has not done.And going by the present indications it won't do either.It is looking for an easy way out by borrowing more & more from govt coffers.It should be SHUT, RESTRUCTURED & the restarted, otherwise its a doomed organisation.

400% rise in fake currency circulation: Finance ministry

“The phenomenal increase in use of counterfeit currency and suspicious transactions underline the fact that fake notes and malafide movement of funds is on the rise in the country,” a finance ministry official noted

New Delhi: As fake currency continues to be pumped illegally into the country, a latest government report states that there has been a 400% increase in such counterfeit transactions in Indian’s financial channels, reports PTI.

The report, compiled by the Financial Intelligence Unit (FIU) under the Union finance ministry states that during 2010-11 financial year (till March 2011), the agency detected “4,23,539 incidents of fake Indian currency notes (FICN) with a face value of over Rs35 crore ($6.8 million).” 

Such reports, called Counterfeit Currency Transactions (CCRs) in financial terms and sent by public and private sector banks to the FIU under provisions of the Prevention of Money laundering Act (PMLA), were 1,27,781 incidents during the 2009-10 fiscal.

The menace of fake currency being stealthily introduced in country’s banking and other financial sectors are reported regularly and the extent of the evil again came to the fore recently when a Delhi Police Special cell team seized fake currency with a face value of Rs2.24 crore ($0.4 million) and arrested two persons.

The FIU report also revealed that the Rs500 ($9.7) denomination notes bear the maximum brunt of counterfeiting in the country.

Rs 500 denomination notes constituted the bulk of CCRs at 60.74%. There was (also) a rise in the number of Rs1,000 denomination counterfeit notes reported in the year 2010-11,” the report said.

The FIU, a central agency for receiving, analysing and disseminating data related to doubtful transactions, also reported that with 37,907 reports of suspect terror-financing and rationale-less transactions, country's banks and financial institutions reported a 300% escalation in detecting Suspicious Transaction Reports (STRs).

The STRs, which gave rise to a reasonable ground of suspicion that the transaction may involve the proceeds of crime or financing of activities related to terrorism or were made in circumstances of unusual complexity, increased three times in 2010-11 as compared to 10,067 in 2009-10 fiscal.

The FIU report, submitted recently to the finance ministry, stated that “private Indian banks contributed majority of CCRs”.

“The phenomenal increase in use of counterfeit currency and suspicious transactions underline the fact that fake notes and malafide movement of funds is on the rise in the country.

“The FIU is continuously alerting agencies like the CBI (Central Bureau Of Investigation), Enforcement Directorate, Customs, Narcotics Control Bureau and special police units to act on these instances under the stringent laws that they enact to curb terror financing and tax evasion within the country and in offshore deals,” a senior finance ministry official said.

While a CCR is equivalent to details of an instance of counterfeit currency detected by a bank, an STR includes details of all accounts, transactions, individuals and legal persons or entities related to a suspicious transaction.

 

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Govt owes Rs110 crore to Air India for VVIP flights

 

The national carrier, which is facing financial crunch, has pending bills of 12 special flights for the president, the vice-president and the prime minister which amount to over Rs110 crore, a Right to Information reply from the carrier said

New Delhi: The government owes over Rs110 crore ($21.3 million) to cash-strapped Air India for its special flights which ferry VVIPs including the president and the prime minister on their visits abroad which it is trying hard to realise, reports PTI.

The national carrier, which is facing financial crunch, has pending bills of 12 special flights for the president, the vice-president and the prime minister which amount to over Rs110 crore, a Right to Information reply from the carrier said.

It said during July last year, the total outstanding bills were Rs291 crore ($56.4 million).

“Out of the above amount, recently the government has paid Rs181.30 crore ($35 million) leaving a balance outstanding amount of Rs110.60 crore,” the reply said.

The records show that two bills are pending with the defence ministry for the abroad travel of the president to Abu Dhabi, Dubai, Damascus and Aleppo during 20-30 November 2010, which is Rs14.5 crore ($2.8mn) and another to Paro via Bagdogra which is Rs4.45 crore ($0.9 million). The bill to Paro, Bhutan is nearly three years old; the reply dated 28 December 2011 said.

Five bills worth Rs55.81 crore ($11million) are pending with the Cabinet Secretariat for the travel of the prime minister to Huahin, Thailand during 23-25 October 2009, to Paro, Bhutan during 27-30 April, to Tokyo, Kuala Lumpur, Hanoi during 23-30 October 2010, to Seoul during 9-12 November 2010 and to Brussels and Berlin during 8-12 December 2010.

The external affairs ministry which is responsible for organising the tours of the vice-president owes Rs35.79 crore ($7 million) towards the Air India for five tours abroad.

One outstanding bill for the travel of the vice-president to Male, Maldives is pending since November 2008. The total bill for this trip was Rs2.77 crore ($0.5 million) of which part payment was done leaving an outstanding of Rs39 lakh ($75,686).

The desperation of the Air India to recover the outstanding amount from the government is visible from a communication exchanged between the civil aviation ministry and Air India which has been accessed by PTI.

In an email on 8th July last year the then Air India executive director S Venkat wrote to the civil aviation ministry, “As you are aware our request for the Rs105 crore ($20 million) towards release of VVIP dues has been taken up by MoCA (ministry of civil aviation) with the ministry of finance and the file is presently pending with them for approval.

“Since we have to pay the oil companies on ‘cash and carry’ basis and due to liquidity crisis, we are unable to meet the commitments on a daily basis to them unless these amounts are paid.” 

He wanted MoCA to issue a letter on the same day, stating ministry has taken up VVIP dues for approval, which could be used for getting an advance of Rs105 crore against dues from Standard Chartered bank so that payment for oil companies can be made next morning.

But despite such a desperate cry for settlement of dues of VVIPs, the ministry replied, “these ministries have conveyed their inability to make the payments immediately due to paucity of funds in their current year budget allocations.” 

“As you are aware a similar constraint had been expressed by ministry of home affairs for making the payment towards VVIP operations and with the approval of ministry of finance, payment of Rs250 crore had been made by this ministry to Air India in June 2011,” it said.

The ministry said it had sought approval of the finance ministry for release of Rs105 crore from out of equity allocation of Rs1,200 crore available in this year’s budget which would be released as and when approval is received.

Soon after this communication, government had paid Rs181.30 crore leaving an outstanding of Rs110.60 crore.

 

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