Air India will be allowed to raise Rs 7,400 crore in bonds, according to a decision of a ministerial group. The bonds, to be guaranteed by the government, will bear a coupon rate of 8.5-9 per cent.

The group also decided that the carrier’s Rs 21,200 crore working capital loans from 26 banks would be restructured. “Of this amo­u­nt, Rs 7,400 crore will be c­ome from the bond issue. Of the remaining Rs 13,800 crore, Rs 9,800 crore will be converted into long-term debt of 10 to 15 years. The balance Rs 4000 crore will remain outside the rest­ru­cturing exercise,” said a ba­nker.

According to official data, Air India has outstanding loans and dues worth Rs 67,520 crore. Of this, Rs 21,200 crore represents working capital loans, Rs 22,000 crore long -term loans taken for fleet acquisition, and Rs 4,600 crore dues to vendors. Plus, it carries an accumulated loss of Rs 20,320 crore.

The ministerial group’s recommendations will now be placed before the cabinet committee on economic affairs for approval, civil aviation minister Ajit Singh told media after a 90-minute meeting. The group headed by finance minister Pranab Mukherjee met on Tuesday, two days before its scheduled Thursday meeting.

“Bonds will be issued, but this will have to go to the cabinet… And there are other ways,” Ajit Singh said, adding that about Rs 7,400 crore would be raised through these means.

An earlier plan to restructure the carrier’s debt had hit a stonewall when banks refused to convert a part of its short- term debt into equity. In this plan, the banks were to restructure Rs 18,000 crore of debt, converting Rs 10,500 crore of this into long-term debt with a repayment period of 10 to 15 years. The rest was to be converted into equity.

Santosh Nayar, deputy managing director for SBI’s corporate banking, said, “We only have a cash credit facility with Air India. So, we will not be impacted by the government’s decision to restructure the debt. But under this plan the banks’ provisioning requirement will come down.”

State Bank of India’s exposure to the airline is about Rs 1200 crore.State Bank of India was the first to have given Air India working capital loans. Thereafter, SBI got into a cash credit arrangement with the airline and got other banks to extend working capital loans.

Other banks with large exposure in Air India include Punjab National Bank (Rs 2,000 crore), Bank of India (Rs 2,500 crore), Canara Bank (Rs 1,800 crore), IDBI Bank (Rs 800 crore) and Bank of Baroda (Rs 2,100 crore). Besides, Corporation Bank has an exposure of Rs 250 crore and Dena Bank Rs 350 crore.

A top official of a public sector bank who wished not to be identified in this report, said, “A coupon of 8.5 per cent is acceptable to us, so long it has an SLR status. This is still not clear.” An SLR (statutory liquidity ratio, now 24 per cent of deposits of a bank) status will allow banks to use the bonds in overnight borrowings from Reserve Bank of India.

Pricing at 8.5 per cent is about 35 basis points above 10-year sovereign paper but in line with the pricing of bonds issued by state governments – these also are sovereign guaranteed but have an SLR status.

(With inputs from C Shiv Kumar from Bangaluru)