NEW DELHI: Lenders to National Aviation Co Ltd (Nacil), which operates under the Air India brand, are softening their stance on debt restructuring and have suggested that they could consider subscribing to the public sector company's non-convertible debentures (NCDs) that carry government guarantee.

Nacil's debt restructuring of Rs 20,000 crore is stuck as lenders, excluding SBI, refused to convert loans worth Rs 18,000 crore into redeemable preference shares, which are like equity shares but carry a fixed dividend, citing the continued losses of AI. In absence of profits, Nacil would not have paid any return to banks and would have caused Rs 10,000 crore loss.

As a result, SBI Caps came up with four alternatives - ranging from continuing it as loan, conversion into preference shares, issuing non-convertible debentures backed by government guarantee and bond that enjoy special tag. While banks have ruled out the second option, RBI has refused to grant statutory liquidity (SLR) ratio tag to the bonds. Banks are not inclined to continue the debt in its present form, leaving NCDs as the sole option. Even here, a government guarantee may not be easily forthcoming given the Centre's commitment under Fiscal Responsibility & Budget Management (FRBM) Act.

Bankers said in the absence of a sovereign cover, the debenture option may not look attractive as it will require higher provisioning. Debt conversion is a key element of the Air India revival plan, which includes government taking over a part of the liability and banks providing a debt recast package. But, the loan restructuring has been stuck as banks other than SBI said the deal was not in their interest.

Source :timesofindia.indiatimes.com