6-Dec-2021: Strategic disinvestment of Air India and its identified subsidiaries/JVs

On account of huge accumulated debt of Air India, Government followed Enterprise Value (EV) bidding approach for strategic disinvestment of Air India and its identified subsidiaries/JVs (100% shareholding in AIXL and 50% shareholding in AISATS). This was stated by Union Minister of State for Finance Dr Bhagwat Kisanrao Karad in written reply to a question in Lok Sabha today.

Given more details, the Minister stated, under the EV approach, bidders were to quote a combined debt and equity value with a split of 85% as debt and minimum 15% as equity consideration for allocation of quoted EV. The strategic disinvestment transaction has been carried out for the entire company as a going concern. Assets other than non-core assets and liabilities other than those excluded from the transaction will remain with the acquirer. Non-core assets of Air India and its subsidiaries (book value of Rs 14,718 crore as on August 31, 2021) are not a part of the disinvestment transaction and will not be taken over by the successful bidder but transferred to Air India Asset Holding Company (AIAHL), 100% owned by GoI.

The Minister stated that the strategic disinvestment transaction has been carried out through an open, transparent and competitive process, involving the following:

• In the first stage of the transaction, seven Expressions of Interest (EOIs) were received of which five EOIs were rejected on grounds of non-fulfilment of eligibility criteria and two EOIs were shortlisted for the second stage.
• Information was made available, under confidentiality undertaking through Virtual Data Room (VDR) to the Qualified Interested Bidders (QIBs), who also inspected the assets and facilities of the companies under the transaction.
• The Request for Proposal (RFP) was issued to the bidders. The Share Purchase Agreement (SPA) was then finalized and issued to the QIBs before submission of bids. DIPAM has a set of indicative guidelines for strategic disinvestment transactions which are to be suitably customized to each specific transaction. The Share Purchase Agreement (SPA) are based on these guidelines and have been finalized after detailed Inter- Ministerial consultations at several fora, the Inter-Ministerial Group (IMG), the Core Group of Secretaries on Disinvestment (CGD) and Air India Specific Alternative Mechanism (AISAM).
• In keeping with the best market practices and extant guidelines, the Reserve Price for the transaction was fixed at Rs 12,906 crore on the basis of Business valuation carried out by the Transaction Adviser and Asset Valuation carried out by the Asset Valuer. The Reserve Price was fixed only after receipt of sealed bids.
• Two financial bids were received following a competitive and transparent disinvestment process. The highest bidder, M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt Ltd quoted an EV of Rs 18,000 crore with a retention of debt in AI + AIXL of Rs 15,300 crore (85% of EV quoted) and the cash component of Rs 2,700 crore (15% of EV quoted).
• The SPA has been signed on 25 October, 2021. As per the SPA, a set of Conditions Precedent (CPs) have to be satisfied by the successful bidder, Air India and Government of India before closing of the transaction.
• The transaction has been supported by professional advice from experts - Transaction Adviser, Legal Adviser and Asset Valuer, who have been appointed through a transparent, competitive process.

The Minister further stated that the transaction can be closed after the CPs are satisfied.

Government Departments / Autonomous Bodies owe Air India Rs 244.78 crore as on September 30, 2021. Out of this, Rs 30.38 crore has been recovered as on 30.11.2021, the Minister stated.

The sale is on a ‘going concern’ basis and the employees shall continue to be employees in terms of the agreed SPA signed on 25th October, 2021, the Minister stated:

• Employees cannot be retrenched for a period of one year from the closing date and will be eligible for voluntary retirement scheme with maximum benefits in case of retrenchment in the second year from closing.
• The employees will also be eligible for other benefits like gratuity, provident fund benefits, passage rights, in accordance with applicable law/ industry practice.
• Employees have been allowed to stay in the residential colonies for a six-month period from closing.
• There is a provision post-closing for ESOP scheme for employees.
• Medical benefits will be provided to existing employees by the strategic buyer as per industry practice.
• Government has the obligation to provide medical facilities to all retired employees (as on closing date) and eligible existing employees (who have attained 55 years of age or above or have completed 20 years of service) and their spouses, post retirement.

8-Oct-2021: Government Approves Air India Disinvestment

The Cabinet Committee on Economic Affairs  (CCEA) - empowered Air India Specific Alternative Mechanism (AISAM) comprising of Union Minister for Home Affairs and Cooperation Shri Amit Shah; Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman; Union Minister for Commerce and Industry Shri Piyush Goyal and Union Civil Aviation Minister Shri Jyotiraditya Scindia approved the highest price bid of M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt. Ltd for sale of 100% equity shareholding of Government of India in Air India along with equity shareholding of Air India in AIXL and AISATS. The winning bid is for Rs 18,000 crore as Enterprise Value (EV) consideration for AI (100% shares of AI along with AI’s shareholding in AIXL and AISATS).  The transaction does not include non-core assets including land and building, valued at Rs 14,718 crore, which are to be transferred to GoI’s Air India Asset Holding Limited (AIAHL).

The process for disinvestment of Air India and its subsidiaries commenced in June 2017 with the ‘in-principle’ approval of CCEA. The first round did not elicit any Expression of Interest. The process re-commenced on 27 January 2020 with issue of Preliminary Information Memorandum (PIM) and request for Expressions of Interest (EOI). The original construct as per the January 2020 PIM envisaged (i) pre-determined, fixed amount of debt to be retained in AI (with balance to be transferred to Air India Asset Holding Limited (AIAHL) and (ii) the sum of certain identified current and non-current liabilities (other than debt) to be retained in AI and AIXL would be equal to the sum of certain identified current and non-current assets of AI and AIXL (excess liabilities to be transferred to AIAHL).

The timelines had to be extended on account of the situation arising from the COVID-19 pandemic. In view of the excessive debt and other liabilities of Air India arising out of huge accumulated losses, the bidding construct was revised in October 2020 to Enterprise Value (EV) to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition. The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15% for equity. As per both the original and revised construct, all non-core assets (land, buildings, etc.) are to be transferred to AIAHL and are therefore not a part of the transaction. It has been ensured that the interest of the employees and retired employees would be taken care of.

The transaction saw keen competition with seven EOIs being received in December, 2020. Five of the bidders, however, had to be disqualified as they could not meet the requirements set out in the PIM/EOI, even after allowing them an opportunity for clarification. The Request for Proposal (RFP) and draft Share Purchase Agreement (SPA) was issued on 30 March, 2021. Air India provided comprehensive information through the Virtual Data Room to the qualified bidders who were also provided access to inspect the assets and facilities being offered as a part of the transaction. A large number of queries from bidders were responded to. On request of bidders, the bid due date was extended to 15 September, 2021 so that they could complete their due diligence before submission of bid. The final SPA containing detailed terms and conditions and the respective responsibilities to meet the conditions precedent for closing the transaction including release of Government guarantees prior to closing was agreed upon prior to bid submission. Two sealed bids were received on the due date along with non-financial bid documents and bid security from the two qualified bidders.

In line with the approved procedure for strategic disinvestment, a reserve price was fixed after the receipt of sealed financial bids for the transaction, based on valuation using methodologies as per the established process. After the independent fixation of Reserve Price, the already received sealed financial bids were opened in the presence of the bidders, who were as follows:

1. M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt Ltd for an EV of Rs 18,000 crore
2. Consortium led by Ajay Singh for an EV of Rs 15,100 crore.

Both the bids were above the reserve price of Rs 12,906 crore.

The entire disinvestment process has been carried out in a transparent manner, with due regard to confidentiality of the bidders, through multi-layered decision making involving Inter-Ministerial Group (IMG), Core Group of Secretaries on Disinvestment (CGD) and the empowered Air India Specific Alternative Mechanism (AISAM) at the apex Ministerial level. Transaction Adviser, Legal Adviser, Asset Valuer, professionals in their respective fields, have supported the entire process.

The next step will be to issue the Letter of Intent (LoI) and then sign the Share Purchase Agreement following which, the conditions precedent would need to be satisfied by the successful bidder, the company and Government. It is expected that the transaction will be completed by December 2021.

28-Feb-2019: Cabinet approves setting up of SPV for disinvestment of Air India and its Subsidiaries/JV

The Union Cabinet chaired by Prime Minister Narendra Modi has given ex-post facto approval for the creation of the Special Purpose Vehicle (SPV) and associated activities for the disinvestment of Air India and its subsidiaries/JV.

Details:

An SPV namely Air India Assets Holding Ltd. (AIAHL) has been created for warehousing accumulated working Capital Loan not backed by any asset along with four Subsidiaries (Air India Air Transport Services Ltd. (AIATSL), Airline Allied Services Ltd. (AASL), Air India Engineering Services Ltd. (AIESL) and Hotel Corporation of India Ltd. (HCI), non-core assets painting and artefacts and other non-operational assets of Air India Ltd. to an SPV.

• Ministry of Civil Aviation (MoCA) issued order for creation of a new SPV. The SPV, Air India Assets Holding Ltd. was incorporated on 22nd January 2018. The Board of Directors of SPV includes CMD, Air India Ltd. and Joint Secretaries of MoCA, Dept. of Expenditure, Dept. of Economic Affairs, DIPAM and Director(Finance) Air India Ltd.
• As on date, one subsidiary, namely AIATSL has been transferred to AIAHL, as per the Share Purchase Agreement between Air India Ltd. and AIAHL subject to conditions precedents which include lenders’ approval.
• Preliminary Information Memorandum (PIM) for disinvestment of AIATSL has been issued on 12.02.2019 by AIATSL with last date of submission of Expression of Interest (EOI) on 26.03.2019.

The Government has decided to transfer following to the newly-created SPV:

1. Debt of Air India Ltd. amounting to Rs. 29,464 crore;
2. The subsidiaries which are not part of Air India strategic disinvestment viz. AIATSL, AIESL, AASL are to be shifted to the SPV; and
3. Non-core assets, painting and artifacts and other non-operational assets of Air India Ltd.

Impact: The approval will ease warehousing of Air India’s subsidiary companies approval namely, AIATSL, AIESL, AASL and HCI from Air India to the newly created SPV company. The disinvestment proceeds will be utilized to set off the working capital loan liability of Air India not backed by any asset also warehoused in the same SPV.