Tatas have won the bid to acquire debt-laden state-run Air India at an enterprise value of Rs18,000 crore, for 100 per cent shares of Air India along with AI’s shareholding in AIXL and AISATS. The transaction does not include non-core assets, including land and building, valued at Rs14,718 crore, which are to be transferred to the government’s Air India Asset Holding Limited (AIAHL).
Talace Pvt Ltd, a wholly owned subsidiary of Tata Sons Pvt Ltd, submitted the winning bid for an enterprise value of Rs18,000 crore, which was Rs5,000 crore more than the reserve price of Rs12,906 crore set by the government.
Rival bidder, a consortium led by SpiceJet chairman Ajay Singh, submitted a lower bid of Rs15,100 crore, which was also above the reserve price of Rs12,906 crore.
The Cabinet Committee on Economic Affairs (CCEA)-empowered Air India Specific Alternative Mechanism (AISAM) comprising union minister for home affairs and cooperation Amit Shah, union minister for finance and corporate affairs Nirmala Sitharaman, union minister for commerce and industry Piyush Goyal and union minister for civil Aaiation Jyotiraditya Scindia, gave the final seal of approval for the highest price bid of Talace Pvt Ltd.
The process for disinvestment of Air India and its subsidiaries commenced in June 2017 with the ‘in-principle’ approval by the Cabinet Committee on Economic Affairs (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).
As per the Air India EoI, Tatas will get a 100 per cent stake in the airline and its low-cost subsidiary Air India Express, and a 50 per cent stake in ground handling company Air India SATS Airport Services Private Ltd (AISATS). Other properties including the Air India building in Mumbai, Airlines House in Delhi will also be part of the deal.
Four acres of land at Connaught Place in Delhi and various housing societies in Delhi, Mumbai and other cities for AI employees and others usage. Air India's subsidiaries such as Air India Engineering Services Limited (AIESL) and Air India Air Transport Services Limited (AITSL) will also be part of AIAHL. At present, Air India has control over 4,400 domestic and 1,800 international landing and parking slots at domestic airports as well as 900 slots abroad.
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 DIPAM secretary said Tatas’ bid of Rs 18,000 crore comprises taking over 15,300 crore of debt and paying the rest in cash. The rest is being transferred to the government-owned SPV AIAHL, Pandey said.
Air India's non-core assets worth over Rs14,000 crore will be transferred to AIAHL, which means a little over Rs36,000 crore will be left over for the government to finally pay, the DIPAM secretary said.
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.
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.
The timelines had to be extended on account of the situation arising from the SARS CoV-2 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 per cent for equity.
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.