Promoted by Tata Sons, which will take over Air India after privatization, Talace has invited bids for a one-year general purpose loan of Rs 23,000 crore from the airline’s existing lenders.
This includes an amount of Rs 18,000 crore to take over Air India debt and an additional Rs 5,000 crore for initial operating costs, as previously reported. Talas announced the successful bid for Air India in October.
The weighted average yield of 4.25% is the cut-off rate at which the government last raised money for one year through an auction of 364-day T-bills.
“It is an overwhelming response given that the loan is unrated and unsecured and yet rates are close to sovereign,” said an executive at one of the lenders, which has imposed penalties of nearly Rs 3,000 crore. “Moreover, it shows the lenders’ confidence in Tatas despite telling the banks that it will take at least six months before they can make any business forecasts.”
Tata’s children did not respond to inquiries.
Large commercial banks such as State Bank of India, Bank of Baroda, Punjab National Bank and Union Bank of India have agreed credit limits of between 12,000 crore and 3,000 crore, said one of the above persons. The same person said Tatas would inform each lender about the allocation in the first week of January and would draw sanctionable limits between January 10 and 15. Banks sanctioning loans to Tatas have passed a special decision to lend Talace below the marginal cost of the fund-based lending rate (MCLR), which is currently pegged at more than 7% for most banks.
The second person mentioned above said: “Tatas originally planned to complete the refinancing of the Air India loan before Christmas, before January 23, which is the long date for closing the Air India deal with the government.” But this was not possible due to several “pre-conditions” stipulated by the government. The same person said, apparently, some of those will now be executed after the capture.
The new debt raised by Talace will replace the previous credit raised by Air India by 9-10%. Talace offered Rs 18,000 crore as part of its winning bid – Rs 15,300 crore for existing debt of Air India and Rs 2,700 crore paid in cash to the government.
The deal with the government does not include land and buildings. As per the agreement, all Air India employees will be retained by Tata Sons, for at least one year. Air India has a fleet of 117 aircraft.