Air India to fetch better valuation if sold with zero debt, say bidders

The bidders said absence of latest financials for the fiscal 2020 was a handicap as all their projections were based on FY19 financials.
With the government looking at options to sell Air India (AI) with zero debt, bidders said the airline would fetch a far better valuation if Rs 5,000 crore of finance cost is knocked off the company’s balance sheet.

“After the zero-debt sweetener, Air India looks attractive as it will be easier to turnaround the airline,” said one of the potential bidders. Though the pandemic has hit the valuations of the airline worldwide, the company will be able to fetch a good bid for the government, he added. In FY19, Air India’s finance cost was Rs 4,896 crore on a debt of Rs 60,000 crore compared to Rs 4,651 crore in FY18. The airline has reported a loss of Rs 2,570 crore in the June quarter of FY21 because of the nationwide lockdown.
A PTI report quoting senior officials on Friday said the central government was considering delaying its disinvestment process in order to woo buyers.

According to the earlier plan, a debt of Rs 23,286 crore was to remain with Air India and Air India Express while the remaining debt of Air India and Air India Express was to be transferred to Air India Asset Holdings.  With the pandemic hitting the potential bidders, the transaction advisor to the government has suggested selling the airline with zero debt.

According to the bidders, absence of latest financials for FY20 is a handicap, as all their projections are based on the financials of FY19.

Apart from the Tatas, a US-based fund, and the Hindujas had evinced interest in Air India.

The valuation of airlines around the world has fallen by half on a year-to-date basis. United Airlines, which was trading at $90 a share is currently trading at $39 apiece. Similarly, Luftahansa AG is trading almost at the same level of ^9 a share, as it was trading during the pre-Covid times. Among the listed airlines, the market valuation of IndiGo is currently Rs 50,548 crore, while much smaller Spicejet is valued at Rs 3,090 crore as of Friday.

“Apart from the financials, we will also take the global and Indian peers into account while making a valuation for Air India,” the bidder said. The government has set the deadline of October 30 for submission of expression of interest. One of the options suggested by the government’s transaction advisor was to reduce the debt to zero so as to make the airline attractive for prospective buyers.

Apart from Air India, the government agreed to sell Air India’s entire stake in low-cost carrier Air India Express and 50 per cent stake in flight kitchen firm, AI-SATS. Air India along with AI Express has 50.64 per cent share of the international traffic to and fro India among Indian carriers.

The two airlines combined control 12.7 per cent of the domestic market as of Q2FY20, according to the information memorandum circulated to the potential bidders.

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