Tatas may look at bidding for Air India

Wednesday 06th November 2019 05:40 EST

Tata Group might consider bidding for the struggling Air India. In an interview, Tata Group Chairman N Chandrasekaran said that he will get his team to look into the matter. “Ideally it should be a Vistara decision, not a Tata Sons decision. I’m not going to run a third airline (in addition to Vistara and AirAsia) unless we merge. There are issues. I will never say yes or no. I don’t know,” he said.

Interestingly, Air India was run by the Tata Group before the Indian government acquired a 49% stake in the airline in 1948. Tata Group to bid on Air India would expand its exposure to the airline industry. Two of its own airlines – Vistara and AirAsia are running in losses.

In the financial year ending March 2019, Vistara’s losses doubled to £83.1 million. Vistara is a joint venture between the Tata group and Singapore Airlines. Meanwhile, Air Asia too is struggling to keep up. Its losses amounted to £67 million, almost five times over its losses in the previous year of £12.5 million. Tata Group runs AirAsia India in a joint venture with Malaysia-based AirAsia Berhad.

For FY19, Air India too posted a massive operating loss of £460 million, while its net loss stood at £840 million. Air India, which has been struggling to find a bidder after the government said that it plans to sell 100% stake in it. It has a massive debt of £5.84 billion and recently state-owned oil companies sent a letter asking them to pay up dues or they will stop supplying aviation turbine fuel (ATF).

Tatas to pump £650 mn into Tata Motors

In a move to strengthen its balance sheet, Tata Sons will pump £649.5 million into Tata Motors which will be one of the biggest fund infusions this fiscal by the parent company. Tata Sons will route the funds by subscribing to equity shares worth £302.5 million and warrants worth £347 million of Tata Motors. The issue price of the equity shares and exercise price for the warrants to be converted into equity within 18 months from the date of allotment have been fixed at Rs 150 apiece. The funds from Tata Sons will be used to pare Tata Motors’ automotive debt of £5 billion.

After the allotment of equity shares and the conversion of warrants into equity, Tata Sons’ stake in Tata Motors will increase to 44% from the current 35%. At the consolidated promoter level, Tata Group currently owns 38% in Tata Motors, the biggest company within the conglomerate in terms of revenue. Tata Sons had stated earlier that it wants to tighten its grip over key Tata entities by having at least 50% stakes in them. It holds over 70% in software behemoth TCS and 49% in Tata Communications. Tata Motors will seek its shareholders’ approval for the allotment of equity shares and warrants on a preferential basis to Tata Sons on November 22.

This equity investment by Tata Sons will allow the auto unit to continue to invest and execute its long-term growth strategy, reduce debt and provide rating support for the company at “this pivotal juncture”, said Tata Motors, which declared a loss of £21.7 million in the second quarter of fiscal 2020. The losses, however, dropped from £104.9 million a year ago. Revenue fell 9% to £6.54 billion. The Tata Sons move comes close on the heels of TCS declaring a special dividend worth £ 1.5 billion for its shareholders. Owing to its large holding in TCS, a lion’s share (£1.05 billion) will go to Tata Sons.

Except some Tata companies like TCS and Titan, most of the group companies have been struggling financially and operationally due to factors such as weak demand and softening consumer spending. Tata Sons has been providing equity support to group companies during difficult situations. The last time Tata Sons infused big money into Tata Motors was in 2015 by subscribing to the automaker’s £904.1 million rights issue. In a rights issue, however, all the shareholders subscribe to the company’s shares.

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