Air India, the state carrier that got a government bailout to avoid bankruptcy this year, is planning its biggest bond sale to refinance costlier debt as it prepares to add Boeing's Dreamliner to its fleet.
The airline is offering 74 billion rupees ($1.6 billion) of 19-year notes at a maximum rate of 9.5 per cent, said a statement on its website.
It issued 20-year securities at 10.05 per cent in September 2011. Benchmark five-year bond yields for AAA rated Indian companies fell 27 basis points this year to 9.25 per cent as central bank Governor Duvvuri Subbarao cut interest rates for the first time since 2009 to arrest an economic slowdown. Similar US rates dropped 20 basis points.
Air India is banking on debt guarantees and almost US$6 billion ($7.5 billion) in government cash injections to revive a business that has made losses since 2007. It is modernising its fleet to save up to 20 per cent in fuel consumption, attract passengers and open routes only profitable with newer planes.
"The sale will help Air India replace high-cost borrowings with lower-interest debt," R.K. Gupta, the New Delhi-based managing director of Taurus Asset Management, which oversees the equivalent of US$679 million, said. "It will find takers because of the government guarantee. Public-sector banks and insurance companies will be particularly keen to bid, as they always seek long-term paper."
