The budget carrier- SpiceJet promoter Ajay Singh is all set with $1 billion war chest for Air India bidding following this year end.
The carrier promoter will use a combination of his shares in the listed company and equity that will be allocated to him as part of a planned hive-off of his airline’s cargo business as security to raise about $300 million.
This shall be his personal contribution to the funding vehicle. So, it will bid for the government’s 100% shareholding in Air India.
The Special Purpose Vehicle
Ajay Singh is putting together a $1 billion war chest for his Air India bid. It will be made through a special purpose vehicle (SPV) that’s likely to include participation from two US-based funds. However, Singh didn’t respond to queries.
Singh will maintain a minimum 26% shareholding in the SPV.
Fundings and Offer for Sale
The two US-based funds are likely to contribute $700 million for the process. Ajay Singh may offload part of his stake in SpiceJet’s cargo unit through the offer for sale (OFS) route once the unit is listed.
However, the people cited above cautioned that the plans are fluid. So, you might end up witnessing final funding arrangement to see some tweaks.
Financial bids for Air India
On June 30, SpiceJet informed stock exchanges about its plan to turn the cargo business of the airline into a separate entity. This is subject to shareholder approval.
The government has set an August third week deadline for submission of financial bids for the state-owned carrier.
Air India’s 100% stake in low-fare carrier Air India Express . It 50% in a cargo and ground handling joint venture with Singapore’s SATS are also included in the sale.
SpiceJet
Singh owns nearly 60% of SpiceJet, as per the latest available disclosures. However, over a third of his stake is encumbered.
The SpiceJet scrip closed at Rs. 80 on yesterday, giving the company a market capitalisation of Rs. 4,850 crore. So, it is further pegging the value of Singh’s holding at Rs. 2,900 crore.
Bidders in the race
Bidders will have to quote an enterprise value for Air India when they eventually submit bids.
But, they would need to assign separate values to the government’s stake in the airline and the quantum of its debt that they are willing to absorb, according to sources.
The debt-laden Airline
Air India has a debt of Rs 37,000 crore. However, it is likely that bidders will seek a haircut on the amount. The debt which they will not repay will be parked in an asset holding company owned by the government.
Tata Sons is reportedly the only other qualified bidder for the airline.
SpiceJet reported revenue of Rs. 5,000 crore for the year ended March 31, down from Rs. 12,000 crore a year ago. The airline has been suffering through losses.
However, the cargo business has witnessed more than fivefold growth in revenue in one year.
It clocked revenue of Rs 1,175 crore for the financial year ended March 31, against Rs 180 crore in the previous year.
Information Source: The Economic Times
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