October 18, 2021

The World Stock Markets Tips & Targets, News, Views & Updates

The World Stock Markets Tips & Targets, News, Views & Updates

Tatas likely to raise up to Rs 15,000 crore in loans to support Air India purchase

The Tata Group may raise up to Rs 15,000 crore through a syndicated loan to support its acquisition of Air India, people familiar with the matter told ET.

The loan may be raised with a three-year maturity offering about 7%, they said.

State Bank of India (SBI) is expected to be the lead banker in the proposed syndication as it has already issued a bank guarantee required for the bidding.

A pack of foreign banks including Standard Chartered, Citi, Deutsche, JP Morgan and Barclays and select local banks are in talks with the group, sources said.

“If foreign banks are not entertained, SBI will remain the key banker,” one of them said.

Individual banks could not be contacted immediately for comments. SBI did not reply to ET’s query as of press time Sunday.

A Tata Sons spokesperson said, “We have been declared the winner of the bid (for Air India). We look forward to working with the Government of India to complete the process over the next few months. We will be able comment further only later.”

The automobile-to-aviation conglomerate was declared the winning bidder for the national carrier on Friday at the end of a process that took close to four years and two attempts. The letter of intent is likely to be awarded to the Tatas on Monday.

Contours of the proposed loan are under discussions and the end use of the proceeds is not yet concluded, people cited above said. Options for bonds are also not ruled out, they said.

Even an overseas fundraising can be explored depending on hedging costs, they said.

“It all depends on money fungibility and how the group wants to structure it,” said one of the persons involved in the matter.

There are certain limitations for local banks funding any acquisition onshore. However, public sector lenders have an exemption.

“SBI and Tata relations go a long way,” one of the persons said. “Even foreign lenders have reached out to the group seeking their participation for any fundraising.”

Some foreign banks are said to have sent term sheets to the Tatas.

Lenders are set to hold another round of discussions this week, sources said.

Tata Sons, a triple-A rated entity, could well be the borrower under a possible structure of raising money. If it raises a loan, that will be better priced than any existing debt of Air India. The proceeds could be used in refinancing and lowering funding costs. In the current circumstances, Air India in its existing shape is billed weaker credit by lenders.

“SBI appears to be a preferred bank as it issued BG as well for the bidding process. The bank is in constant touch with the Tata Group,” a senior banker said.

Air India’s total debt as of August end was Rs 61,562 crore. Of that, the Tatas have taken over Rs 15,300 crore.

Almost all of the debt – some are non-convertible debentures – are short term with tenure of one year, a person close to the development said. The borrowing rates range between 7-9.5%. “Some of these are backed by sovereign guarantees by the government while some aren’t,” he said. “The ownership of the loan has changed and it is now up to the Tatas to refinance or repay them.”

The process of acquisition is expected to be completed by December this year. This has thrown lending opportunity for banks that have been facing muted credit growth since the pandemic began in March last year.

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