Aviation sector gets nod for $1 billion external loans

Mangaloretoday/DHN

New Delhi, April 19, 2012: The government decided on Thursday to allow the entire civil aviation sector to borrow up to $1 billion from foreign countries to meet their working capital requirement for one year, allaying immediate financing concerns of the civil aviation sector.

 

A Finance ministry statement said the government would also consider relaxation in average maturity of overseas borrowing above $20 million from five to three years for the sector, in order to increase access to external commercial borrowing (ECB).

The government’s decision is in line with Finance Minister Pranab Mukherjee’s announcement in this year’s budget that the aviation sector would be allowed to avail of ECB for a period of one year, to fulfil their requirement of working capital.

The Reserve Bank of India will issue a notification within seven days giving effect to the government’s decision.
Limits

The limit for individual airline companies would be $300 million out of the $1 billion for the entire sector. This limit could be availed either lumpsum or in tranches depending upon the usage, the ministry statement said.

The RBI would consider proposals of individual companies under the approval route based on the parameters such as cash flows and the capacity of individual companies to repay these loans from their foreign exchange earnings.

Analysts said the decision would provide an additional source of capital at low cost to the airline industry and help them tide over their present financial crunch.

The decision will also come in handy in the wake of the airlines industry bearing the brunt of high operating costs on account of high fuel costs.

On Wednesday, the government had allowed the use of overseas borrowings in setting up toll systems on roads and highways. It also allowed power companies to swap 40 per cent of their high cost rupee debt with overseas borrowings.