Air India seeks consent to alter bond maturity dates

Ahead of its imminent takeover by the conglomerate Tata Sons, Air India (AI, Mumbai Int’l) has sought the approval of bondholders to bring forward the dates of maturity of two series of bonds sold in September 2011, The Economic Times newspaper reported after seeing copies of the letters.

The perennially loss-making flag carrier managed to raise about INR55 billion rupees (USD739 million) through the state-guaranteed bonds, which were sold mainly to wealthy individuals and retirement funds. The 15-year and 20-year bonds carry interest rates of 9.84% and 10.05%, respectively.

Air India is reportedly seeking to prepay the non-convertible debentures (NCDs) at a premium at a clean price – without accrued interest between coupon payments – instead of at par value, a move it claims will shield investors from incurring any loss in the current “soft interest rate regime.”

The development has led some investors to call Air India’s request an “unprecedented move,” but the company insisted it would ensure bondholders suffer no losses, having revised the terms for repurchase. The company asked the bondholders to submit a reply by January 19, failing which “it will be deemed approval from your end.”

An unnamed “senior government official” explained to the newspaper that because the bonds have government guarantees they must be disposed of before the airline is transferred to its new owner.

“As the guarantee attached to the two sets of papers is irrevocable and unconditional, it cannot be passed on to any other entity, particularly a private-sector acquirer,” explained Ajay Manglunia, managing director at Mumbai-based financial services firm JM Financial. “The local debt market does not have any such precedent, but it is essential for Air India.”

He suggested that bondholders would agree to cash in the bonds, as the promised returns exceed current yields.