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Jan 19, 2012 at 09:25pm IST

Banks examining options for Air India's debt recast

Mumbai: Bankers on Thursday explored various options including conversion of the Rs 18,000 crore loans to SLR as part of the debt restructuring of the ailing Air India carrier and may finalise the bailout package next week.

"We are looking at various instruments like SLR, long-term bonds and non-convertible debentures among others as part of the debt recast plan of Air India," Oriental Bank of Commerce Executive Director SC Sinha told reporters after the debt recast meeting in Mumbai.

Conversion of loans to Statutory Liquidity Ratio (SLR), which are considered as approved security for investment, will provide comfort to the lenders.

Banks examining options for AI's debt recast

The meeting was attended by officials from 14 banks including SBI, Bank of India, PNB, Bank of Baroda, and OBC.

The two-hour meeting was attended by officials from 14 banks including consortium leader SBI, Bank of India, Punjab National Bank, Bank of Baroda, Central Bank of India, and OBC.

Sinha also said that bankers would submit their final proposal to SBI Capital Markets, who is advisor to the Air India, by Saturday for a final decision. "We are yet to arrive on a final decision. We will submit our proposal to SBI Caps by Saturday and again meet sometime next week to take a final call," he added.

Earlier this week, the lenders had rejected a proposal of cumulative redeemable preference shares (CRPS) by the Air India, fearing that it could bring down bottomline of banks. In New Delhi, SBI chief Pratip Chaudhuri said that "Air India is central government owned airlines. Any lenders comfort with Air India is complete and absolute". The government has asked the lenders to finalise the decision on Air India debt recast ahead of the meeting of the Group of Ministers (GoM) on January 31.

Chaudhuri said "certainly January 31 is a comfortable timeline and we would able to come back with the proposal". Under the financial restructuring plan, Rs 11,000 crore out of the working capital loans of around Rs 27,000 crore may be converted into long-term debt and Rs 7,000 crore into cumulative redeemable preferential shares (CRPS).

Earlier, SBI Caps had given a proposal to the consortium of banks to convert Rs 11,000 crore of short-term working capital loans of the state carrier into long-term debt and converting Rs 7,400 crore of debt into preference shares with 8 per cent dividend.

However, the lenders raised objections to the provision of CRPS, as they were of the opinion that Air India may not be able to give dividends due to its financial health. "Ultimately, we want that nobody should be hit due to the debt restructuring. It shouldn't also dampen the sentiment of the market. So, the debt recast should be designed to benefit all," an official of another state-run bank said.

Air India has a total debt of Rs 43,777 crore and a loss of Rs 20,320 crore in the last four financial years. As an interim measure, the government has agreed to release Rs 150 crore to Air India after pilots reported sick on Saturday to protest against salaries not having been paid for four months.

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