To attract potential suitors, the government will ease asset valuation norms for Air India by allowing bidders to put in offers on an enterprise value basis, a source said on Monday. To begin with, the government is likely to further extend the deadline for putting in a preliminary expression of interest for the loss-making national carrier to December 15.
The source said bids will be sought on an enterprise value basis - a popular valuation methodology for takeover deals.
Enterprise value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt as well as any cash on the company's balance sheet.
The source said the government would remove from the Preliminary Information Memorandum (PIM) the quantum of debt to be assumed by the bidder. The bidders would also be asked to place offers for the entire company, 85 per cent of which would be considered to go towards debt repayment and the balance would accrue to the government, the source said.
"Changes are being made to the valuation method. CGD (Core Group on Disinvestment) has approved it and it would be placed before AISAM (Air India Specific Alternative Mechanism). The deadline for Air India bid is proposed to be extended till December 15," the source told .
This would be the fifth extension to the Air India bid deadline with the current one ending on October 30.
After its unsuccessful bid to sell Air India in 2018, the government in January 2020 restarted the divestment process and invited bids for selling 100 per cent of its equity in the state-owned airline, including Air India's 100 per cent shareholding in AI Express Ltd and 50 per cent in Air India SATS Airport Services Private Ltd.
In 2018, the government had offered to sell its 76 per cent stake in the airline. Of the airline's total debt of Rs 60,074 crore as of March 31, 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), a special purpose vehicle.
The source further said that the government would be giving a "merit list" of Air India debts to the interested bidders at the due diligence stage based on which the bidders can decide on which debt to repay. The change in valuation methodology for Air India was necessary as the aircraft fleet is idle during COVID time and valuation based on flight operating capacity would not be possible at present.
The government would be giving time to potential bidders to raise queries on the change in valuation methodology, the source added.
For the current fiscal, the budget has pegged disinvestment proceeds at Rs 2.10 lakh crore. This includes Rs 1.20 lakh crore from CPSE share sale and Rs 90,000 crore from share sale in public sector banks and financial institutions, including listing of insurance behemoth LIC.