Air India Bond Issue Oversubscribed Three Times

Air India Assets Holding Ltd, a special purpose vehicle of the national carrier, received Rs 20,830 crore worth of bids for its Rs 7,000 crore bond issue on Monday, said bankers familiar with the matter.

It was over-subscribed by nearly 3 times from investors including banks, mutual funds, insurance companies and foreign portfolio investors, two bankers close to the issue told BloombergQuint on the condition of anonymity.

The coupon for the bond issue was set at 6.99 percent, around 86 basis points higher than the 3-year government bond yield which stood at 6.13 percent, according to the bankers. The Rs 7,000 crore bond had a base issue of Rs 1,000 crore with a green-shoe option of Rs 6,000 crore, BloombergQuint reported on Sept. 13.

The issue was structured as a Government of India-serviced bond, which essentially means that the Government is responsible for the coupon payments, through an escrow mechanism. This is different from bonds issued by government companies like Power Finance Corporation, where the interest payments are made by the corporation directly.

Ashwani Lohani, chairman of AIAHL, said the entire issue was subscribed at a very attractive rate. “This reflects the confidence of the entire market in securities fully backed by Government of India. The positive response received from all categories of investors will act as a stimulus to the disinvestment process of Air India,” Lohani, who’s also the chairman and managing director of Air India, said in a statement.

Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Company, said the issue was successful. The spread over the government bond yields reflects the fact that these bonds will not be eligible to be included into the statutory liquidity ratio and are essentially corporate bonds. Also the issue size was large and more such offerings from AIAHL are expected, Iyer explained. Higher oil prices and the resultant increase in bond yields also led to a higher coupon being set, she said.

ICRA Ltd and India Ratings and Research Pvt Ltd have both rated the bond issue AAA.

This is the first tranche of bonds to be issued by AIAHL of the total Rs 22,000 crore in bonds the government wishes to raise for repaying debts of the national carrier. AIAHL will raise the remaining Rs 15,000 crore through a 10-year bond, the structure for which is still being deliberated, said the bankers cited above.

The SPV holds several non-core assets of Air India Ltd, as well as four of its subsidiaries. Of the Rs 60,000 crore debt weighing on the books of the country’s largest airline operator, around Rs 29,464 crore of the debt is “warehoused” with AIAHL.

The Government is currently working on selling its stake in the national carrier. Air India posted an operating loss of around Rs 4,600 crore in the fiscal-year ending March 31, 2019, but it expects to turn around in the current year, according to a Press Trust of India report on Sept. 15.

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