Air India's debt restructuring has hit a hurdle as banks say they want seats on the airline’s board after they agreed to convert 40 per cent of its short-term debt, or Rs 7,000 crore, into equity.
“The consortium restructuring the debt has raised concerns over not getting any representation in the board even after converting a substantial part of the debt into equity,” said a senior civil aviation ministry official, who did not want to be identified. “They have raised this issue with the Reserve Bank of India (RBI) after the finance ministry denied them any board-level representation.”
Air India (AI) is the second Indian carrier to get a large bailout this year. In early 2011, 15 banks restructured a Rs 7,000 crore debt for Vijay Mallya-promoted Kingfisher Airlines as per a report in Business Standard by Mihir Mishra.
In the Air India debt recast, most of the 26 banks are state-owned. They include State Bank of India, the biggest lender to the airline. Other names include Punjab National Bank and Bank of India.
The official said the finance ministry said the consortium will not get any representation on the board even after converting debt into equity. “The banks feel without any representation on the board of the airline they will not be able to ensure protection of their interest,” the official added.
According to the restructuring plan approved by RBI, the banks will restructure Rs 18,000 crore of the Rs 24,000 crore short-term debt on Air India’s books. Of this amount, banks will convert Rs 11,000 crore to long-term debt with a repayment of 10 to 15 years. They will convert the remainder, around Rs 7,000 crore, into Compulsorily Convertible Preference Shares.
AI has Rs 43,000 crore of debt on its books— Rs 20,000 crore aircraft loans, and Rs 24,000 crore working capital loans or short-term debt. The aircraft loans have a long repayment period, and are less of a cause of worry.
The debt restructuring is part of a bigger revival plan for the airline. The plan is being reviewed by a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee.
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