“Any ownership change would warrant a rating re-evaluation,” said K Ravichandran, chief rating officer at ICRA Rating.
“When a sovereign-backed entity becomes a privately held company, market funding costs naturally will change.” The intensity of rating change, according to Ravichandran, will depend upon factors such as strategic importance of the new business, degree of funding commitment to the new business, the extent of involvement of top management, existing debt obligations and future cash flow projections.
Air India had sought bondholders’ consent to advance the maturity deadline of two particular series of bonds sold in September 2011, ET reported on January 19. Those bonds were backed by a government guarantee and offered 9.84% and 10.05%, respectively, with 15- and 20-year maturities. The total outstanding on these bonds is ₹5,500 crore.
A large insurer participated in the offer giving back bonds worth about ₹3,300 crore bonds, market sources said.
“The Tata Group is taking the company without any debt baggage, which in turn will help lure local and global bond investors,” said Ajay Manglunia, managing director and fixed income head at JM Financial. “When the new Tata entity taps bonds, funding costs will likely rise.”
Going by the secondary market, Air India papers should be yielding in the range of 7-7.50 percent range. “A credit enhancement from any parent entity will help cut borrowing cost increases (in any bond sale),” said Manglunia. In the local bond market, credit enhancement (CE) can help get triple-A credit rating and help cut extra cost by at least 10-15 basis points. Tata Sons, the group’s parent, is a triple-A rated entity.