- November 16, 2012
Debt downs India’s airlines
The drama thats unfolding in India’s airline sector and has nearly taken one casualty, in Kingfisher Airlines earlier default and grounding, is causing turbulence for the rest of that country’s airlines as well. While Kingfisher is already down but not (yet) out, others including the once former crown of India’s aviation industry, Jet Airways, is managing to cruise while waiting for its safe landing.
The weighted average cost of the Mumbai-based company’s debt was 11.2 percent in the three months ended Sept. 30, compared with 11.1 percent for Tam SA, Brazil’s largest airline, in the quarter ended March 31, data compiled by Bloomberg show. Jet Airways had 120 billion rupees ($2.2 billion) of liabilities as of September, Chief Commercial Officer Sudheer Raghavan said in the Nov. 5 conference call.
Indian carriers pay as much as 18 percent interest on short-term debt, and as much as 14 percent on long-term borrowings, according to a document prepared in June by the Ministry of Civil Aviation. Airlines have sought government help to access long term funds at a fixed cost, it said.
The benchmark five-year bond yield for Indian banks rated AAA by Crisil Ltd., the Indian unit of Standard & Poor’s, has declined 74 basis points this year to 8.78 percent, according to data compiled by Bloomberg, after the Reserve Bank of India cut lenders’ cash reserve requirements to 36-year low of 4.25 percent to free up cash for lending. The yield on benchmark 10- year sovereign bonds slid 35 basis points in the same period to 8.22 percent, the data show.
The Reserve Bank of India’s benchmark rate is higher than 6 percent in China, 2.75 percent in South Korea, 2.75 percent in Thailand and 5.75 percent in Indonesia…….
The nation’s bond risk fell. Credit-default swaps on State Bank of India (SBIN), which some investors consider a proxy for the sovereign, fell 152 basis points, or 1.52 percentage point, in 2012 to 243 in New York, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements.