Life Insurance Corporation of India, EPFO to fully subscribe to bond issue of Air India

Life Insurance Corporation of India (LIC) and the Employee Provident Fund Organisation (EPFO) have decided to fully subscribe to the Rs.7,400 crore bond issue of Air India, thus giving a lifeline to the national carrier. An Air India spokesperson said that both LIC and EPFO have agreed to buy all the non-convertible debentures (NCDs) being sold to raise resources to repay bank loans.

The proceeds will be paid out to the banks and it will reduce our short-term loans, the spokesperson said. Air India has borrowed Rs.18,000 crore from banks to meet working capital requirements. Though the whole issue has been sold out, the bond sale programme would remain open till December 18, Air India officials said.

While LIC has agreed to subscribe to bonds worth Rs.3,000 crore, EPFO will pump in the balance Rs.4,400 crore. The government had in April this year announced a Rs.30,000 crore bailout plan to revive the airline. The 19-year-old issue has a coupon of 9.08 per cent and will fetch 9.27 per cent for LIC and the EPFO on maturity. Principal redemption will be in five equal instalments, starting from the 15th year, with interest payments being made bi-annually.

Recently, India Ratings had assigned Air India Ltd.’s (AIL) NCD issue a final rating of IND AAA(SO)The rating reflects the absolute, unconditional and irrevocable guarantee extended by the Government of India for the timely repayment of principal and interest on AIL’s NCDs. It is a continuing guarantee and shall remain in force and effect until the complete discharge of NCD obligations.

The guarantee will also remain in force if AIL cannot meet its NCD obligations due to any winding up or similar proceedings initiated against the company including any reference of the company to the Board for Industrial and Financial Reconstruction.