Highly debt-ridden national flag carrier Air India will soon seek clearance from the Union Cabinet with a rejig plan to monetise its large land assets by floating Real Estate Investment Trust (REIT) even as it has hired international audit agency PriceWaterhouseCoopers (PwC) to work on the revival package.
“We will have to take Cabinet clearance once the proposal is ready as we are studying the options in consultation with PWC,” Rohit Nandan, CMD Air India told The Pioneer. The study proposes to spin off the large property and land bank of Air India as REIT and is expected to mobile large funds. AI proposes to sustain a majority holding in the REIT at 51 per cent and will be listed at the stock exchanges and will help retire its enormous debts.
“We have large land and property asset base which we want to capitalise on,” added Nandan. In the Union Budget, Finance Minister Arun Jaitley had encouraged the formation of the REITs which have land, property or mortgage instruments as an underlying and are highly popular in the West and an efficient means of raising money from the market.
Finance Minister Jaitley has said the Government would give incentives to such instruments and that they would also get a tax pass through. The minimum investment for REIT is to be made is Rs 2 lakh and it gets an exemption if it gives 90 per cent of its distributable income to investors.
A REIT can be floated by any company just like a mutual fund, and it has an AUM component which largely comprises of an underlying asset as land and property or other related instruments. The turnaround of the national flag carrier Air India has been much talked about for last many years but without any plausible solution.
AI which carries a cumulative debt burden amounting to over Rs 40,000 crore has 800 prime property under it at various locations around the world . It has large property assets like office space, residential buildings and even stadia, this includes a office complex in Sydney as well as its headquarters in Mumbai - the latter is valued at about Rs 2500 crore. The flag carrier was burdened with a loss of Rs 5,400 crore for the previous fiscal. It has sought an equity infusion of around Rs 30,000 crore which it holds will turnaround the PSU.
It is learnt that PWC consultants has made a initial study on the issue and has suggested the REIT route to be most beneficial to turnaround the flag carrier. The consultants has also presented its strategy and the Ministry of Civil Aviation will seek its advice on the issue. Once the REIT package is finalised, it will have to be registered with SEBI before it is floated in the capital market like an IPO. Infact, if the AI’s plan comes through AI will be the first to bring out a REIT after the new Government has come into place.