Air India had sought bondholders’ consent to advance the maturity deadline of two particular series of bonds sold in September 2011, ET reported on January 19.

As per as information ‘Credit enhancement’ from parent company Tata Sons will be vital in arresting any jump in borrowing costs for Air India, which returned to the conglomerate’s ownership after nearly seven decades. Experts said an ownership change would likely open both local and offshore bond markets for the aviation company, which has no baggage of past debt obligations.

With the Tatas now in the cockpit, Air India may be rerated by credit rating companies.

K Ravichandran the chief rating officer at ICRA Rating said, “Any ownership change would warrant a rating re-evaluation”.
“When a sovereign-backed entity becomes a privately held company, market funding costs naturally will change.” The intensity of rating change, according to Ravichandran, will depend upon factors such as strategic importance of the new business, degree of funding commitment to the new business, the extent of involvement of top management, existing debt obligations and future cash flow projections.

TATA

The intensity of rating change, according to Ravichandran, will depend upon factors such as strategic importance of the new business, degree of funding commitment to the new business, the extent of involvement of top management, existing debt obligations and future cash flow projections.

According to the report, Air India had sought bondholders’ consent to advance the maturity deadline of two particular series of bonds sold in September 2011, ET reported on January 19. Those bonds were backed by a government guarantee and offered 9.84% and 10.05%, respectively, with 15- and 20-year maturities. The total outstanding on these bonds is ₹5,500 crore.

A large insurer participated in the offer giving back bonds worth about ₹3,300 crore bonds, market sources said.

Further Ajay Manglunia the managing director and fixed income head at JM Financial said “The Tata Group is taking the company without any debt baggage, which in turn will help lure local and global bond investors. When the new Tata entity taps bonds, funding costs will likely rise.”

Going by the secondary market, Air India papers should be yielding in the range of 7-7.50 percent range. “A credit enhancement from any parent entity will help cut borrowing cost increases (in any bond sale),” said Manglunia. In the local market, credit enhancement (CE) can help get triple-A credit rating and help cut extra cost by at least 10-15 basis points. Tata Sons, the group’s parent, is a triple-A rated entity.

Air India

Tata Sons, the group’s parent, is a triple-A rated entity.