March 20 - Fitch Ratings has affirmed Air India Limited's (AIL) INR7bn non-convertible debentures (NCD) at 'Fitch AAA(ind)(SO)'.
The rating reflects the absolute, unconditional and irrevocable guarantee extended by the Government of India (GoI, Foreign Currency Issuer Default Rating 'BBB-'/Stable) for timely repayment of principal and interest. The rating is further supported by the guarantee structure, which ensures timely debt servicing. The guarantee is legal, valid and binding even in the event AIL goes insolvent and files for protection under the Sick Industrial Companies Act or any similar legislation.
The aforementioned NCDs were issued on 26 March 2010 and have a tenor of 10 years, with principal redemption as a bullet repayment at maturity. Interest payments are made bi-annually on 31 March and 30 September. AIL has opened a no-lien trust and retention account (TRA) with Standard Chartered Bank to meet its bond obligations.
Bank statements of the TRA confirm that to date AIL has been funding the account to adequate extent well in advance of the due date for interest payments on the NCDs.
Fitch notes that failure of the GoI to meet timely obligation on invocation of guarantee, non-compliance of the payment mechanism for repayment of the rated instrument, and any change in the GoI's policy that provides protection to AIL from its creditors in case of its insolvency will lead to a downgrade.
AIL is a fully-owned GoI enterprise. Its main services are passenger service, cargo service, maintenance and repair service and ground handling services. For the financial year ended 31 March 2011 (FY11), it reported operating revenues of INR139.7bn (INR131.1bn at FYE10) and EBITDA loss of INR23.3bn (EBITDA loss of INR20.8bn). As at FYE11, it had total debt (including finance leases) of INR426.3bn (INR384.2bn at FYE10). As part of the revival strategy for the airline, the GoI, in its budget for FY13, has proposed equity investment of INR40bn in this company.