linked to the Belt and Road
Initiative was a US$1.065bn
14.5-year loan for China
Construction America, the
American subsidiary of state-
owned builder China State
Construction Engineering Corp.
The deal was signed in early
June and backs the construction
of a 538-kilometre highway
project in Argentina. This
is CCA’s first public-private
partnership and the first such
contract for a Chinese company
in Argentina, which has
pledged to deepen cooperation
with China under the BRI
framework but stopped short of
formally endorsing the scheme.
Sumitomo Mitsui Banking
Corp was the mandated lead
arranger and bookrunner
of that transaction, which
attracted four banks in
syndication and pays an
interest margin of 300bp over
Libor.OPPORTUNISTIC LENDING
Non-financial outbound direct
investments from China into
51 countries along the Belt and
Road declined 5.1% year on year
to US$5.63bn in the first five
months this year, according to
data from the Chinese ministry
of commerce.
The biggest destinations were
Singapore, Vietnam, Pakistan,
the United Arab Emirates and
Malaysia, in sectors including
leasing and business services,manufacturing and retail
as well as information and
technology.
Despite the fall in outbound
investments, bankers are
still eyeing potential lending
opportunities as uncertainties
around trade talks drag on.
“We’re still seeing strong
pipelines in the infrastructure
and energy sectors in South-
East Asia and in some parts of
Europe,” said a second senior
Beijing-based banker at a
Chinese bank.
US President Donald Trump
and Chinese President Xi
Jinping met on the sidelines
of the G20 summit in Japan
on June 29, where the leaders
of the two world’s biggesteconomies agreed to restart
stalled trade talks and pledged
to hold off on new tariffs on
each other’s imports.
Although trade talks have
restarted, a potential deal is still
a long way off, White House
trade adviser Peter Navarro said
in an interview with US media
on July 2.
“It remains to be seen
whether the two countries will
be able to resolve the trade
issues. We’ve all seen Trump
changing his mind, days after
he made his statements or
promises, so we’ll remain
selective in our lending and
follow the developments
closely,” said the second
banker. Air India plans jumbo bond sale
Bonds Financing revives efforts to privatise national carrier
BY KRISHNA MERCHANT
The Indian government is
counting on a jumbo Rs220bn
(US$3.2bn) bond sale to revive
efforts to privatise debt-ridden
national carrier AIR INDIA after a
first botched attempt last year.
AIR INDIA ASSET HOLDINGS LIMITED,
a government-owned special
purpose vehicle formed last
year to take over Rs295bn of
the airline’s Rs575bn debt, in
addition to various assets and
subsidiaries, is set to name
underwriters for the proposed
bond issue on Monday, according
to a source close to the plans.
Around 16 arrangers put in
bids last Wednesday to manage
the sale.
The SPV is planning to
raise Rs70bn from three-year
government-serviced bonds on
July 15. A sale of Rs150bn 10-
year government-guaranteed
bonds would follow by the end
of the month.
The proceeds will be used to
further streamline Air India’s
debt structure and make it fit
for a share sale later this year.
In May 2018, the government
offered a 76% stake in the
airline but failed to attract a
single bidder, causing great
embarrassment at the time for
the administration of Prime
Minister Narendra Modi. AIAHL
was formed afterwards to start
cleaning up the company’s debt
burden.
The government confirmed in
its budget statement on Friday
that it will now “reinitiate
the process of strategic
disinvestment of Air India”.
The company is expected
to report a loss of more than
Rs76bn for year to March 2019,
up from a loss of Rs53.37bn
a year earlier, according to
Reuters, despite receiving
Rs39.75bn of government funds
in the last fiscal year.
According to local media
reports, Air India does not have
enough funds to pay employee
salaries beyond October.STAKE SALE
Much is riding on the success
of the AIAHL bond issue.
“The removal of the huge
chunk of debt improves the
attractiveness of the airline,”
said a partner from an
accounting firm.
However, Air India’s previous
attempt at issuing a large
government-supported bond
was not a success. In March,it sent an RFP to raise up to
Rs70bn from bonds backed
by a government guarantee at
tenors of up to 15 years, but
the issue did not materialise
because investors were not
comfortable with the structure.
“There was a clause in the
issue that if the ownership
changes, the government
guarantee will cease to exist,”
said a DCM banker. That was
clearly a concern for investors,
given that the government
wants to sell its stake.
“Hopefully there will be an
unconditional guarantee from
the government of India” this
time, said a fund manager.
Investors are expected to be
keen on the bonds because of
the government guarantee and
the pick-up over government
securities.
“Investors do not have to
worry about repayment. If
Air India Asset Holdings is
not able to sell the assets and
subsidiaries, the government
will pay the coupon and
principal to the bondholders,”said another DCM banker.
Few investors participated
the last time Air India came to
the market in December 2012,
when it raised Rs74bn from
19-year bonds at 9.27%. That
issue had an unconditional
government guarantee and
was taken up by Employees’
Provident Fund Organisation
and Life Insurance Corp of
India, both of which are
controlled by the government.
The competitive
environment for the airline has
improved after its debt-laden
private sector rival Jet Airways
ceased operations in May.
“With Jet Airways shutting
down, the March quarter
was good for Indian carriers
as competition reduced and
fares went up,” said Kinjal
Shah, Icra’s vice president of
corporate ratings.
Economic conditions are also
more favourable.
“Oil prices have come off
recent highs and the rupee is
also stable,” said the accounting
firm partner.
SBI Capital Markets is the
adviser for the bond sale. For daily news stories
visit http://www.ifrasia.com