State bank may back Tata bid for Air India

State Bank of India, the country’s biggest public sector bank, will support Tata Sons’ privatisation bid for Air India (AI, Mumbai Int’l) by subscribing to Tata debentures or by funding the special purpose vehicle the group sets up for the acquisition, Business Standard and The Economic Times reported on September 21.

A Tata Sons acquisition of Air India may cost around INR150 billion rupees (USD2 billion), sources in the banking sector told the newspapers.

As banks in India do not provide loans to corporate entities for acquisitions, the bank would subscribe to the Tata Sons debentures, encouraged by the conglomerate’s AAA rating, which signifies a high level of security and firm prospects for the flag carrier under the group’s ownership.

Tata Sons has shareholder approval to raise up to INR400 billion (USD5.4 billion) and its ownership of Tata Consultancy Services (TCS), the world’s most valued information technology company according to Bloomberg data, with a market capitalisation exceeding USD200 billion, give Tata Sons the financial muscle it needs to go for such a large-scale acquisition, the sources surmised.

Air India’s accumulated losses ballooned to INR708.2 billion (USD9.6 billion) during the financial year ending March 2020, civil aviation minister Vijay Kumar Singh confessed last month, and while the results for the most recent financial year have not yet been reported the annual loss is expected to be an additional INR100 billion (USD1.35 billion). However, much of the debt has been transferred out of the company to a separate government-owned SPV, Air India Assets Holding Ltd.

Tata Sons already operates loss-making full-service carrier Vistara (UK, Delhi Int’l), which in late August posted a slightly narrower loss for the 2021 fiscal year of INR16.1 billion (USD218 million) but whose total liabilities stood at INR115 billion (USD1.56 billion). Tata owns 51% of Vistara, Singapore Airlines 49%.