To participate in stake sale process, IFC may underwrite Air India debt

International Finance Corporation (IFC) has evinced interest in the sale process of government-owned Air India (AI).

The World Bank’s private investment arm is assessing the potential investment opportunity and seems open to the burden of agreeing to underwrite the entire debt amount for the successful bidder.

“IFC has had rounds of discussion with transaction advisor EY for the deal and have said they would explore the opportunity to work with a successful bidder by underwriting the debt amount,” said a person aware of the developments.

The Union government has called for bids to sell 76 per cent in AI, along with the entire equity in the latter’s low cost arm, Air India Express; also, 50 per cent stake in joint venture AISATS, which is into the ground handling business.

When asked, an IFC spokesperson said they were watching the AI sale process and might evaluate the option of getting involved when the transaction was complete. “At present, IFC is not involved in the divestment process; normally, we do not join during a bidding phase. However, we are committed to bridging development gaps in India, and financing of transport and logistics is one of our top strategic priorities. Therefore, we are watching the AI process closely and might get involved at a later stage,” he said. “Once the winning bidder is chosen, we will evaluate the situation to see if we have a role to play.”

Potential AI bidders have publicly expressed inability to agree to the government’s stated terms. That includes taking over part of the airline’s debt and retaining all employees for at least a year. As part of the deal, a successful bidder has to take over Rs 333.92 billion of debt, which includes current liabilities. The government says it will hive off the remaining portion of debt to a separate holding company.

“It is the question based on the evaluation we did and we felt this level of debt on the asset might not be appropriate for us. It may be appropriate for someone else,” Amit Agarwal, deputy chief executive at Jet Airways, had said.

A second person said discussion was at a very preliminary stage and whether IFC will ultimately invest or not depends on the selected bidder. “IFC is not in the business of managing companies.

So, they do not seem to be much interested in cases where debt is converted to equity and management is replaced. One way they may get involved is by investing in security receipts issued by asset reconstruction companies,” the person said.

IFC has been active in equity, quasi-equity and debt finance deals in India across sectors. IFC South Asia director Mengistu Alemayehu had earlier said the organisation was looking to investing in distressed assets in India through reconstruction companies, either through a fund platform or a holding platform. For this purpose, it had formed a joint venture in January with Clearwater Capital

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