Last Updated: May 12, 2021, 1600 hrs
Wadia Group operated-GoAir’s proposed plan for an initial public offering (IPO) in the coming days could be the only attempt by the promoters to raise funds at a time when the aviation sector has been devastated by the ongoing covid-19 pandemic.
According to credit rating agency ICRA Limited (ICRA) which is an independent credit agency comprising leading commercial banks, financial institutions and financial services companies which evaluates the relative credit risks associated with the debt instruments and institutions, Go Air has already received a credit line of ₹700 crore to ₹800 crore from banks earlier this year. However, this may not be enough as Indian airlines are expected to incur net losses of about ₹21,000 crore during FY21 following the widespread disruptions caused by the covid-19 pandemic, and would require additional funding of up to ₹37,000 crore through FY23 to recover from their losses and debt.
“It seems like a desperate attempt (to raise funds) by the promoters as the Indian government is not bailing out airlines, IPO is possibly the cheapest way for the airline to raise money,” said Nripendra Singh, research head and strategy consultant-aviation at Frost & Sullivan.
At present, InterGlobe Aviation Limited (IndiGo) and SpiceJet Ltd are the only listed airlines for the purpose. During the last one year, IndiGo’s stock has gained 74.44% while SpiceJet has gained 70.71%, according to Bloomberg data.
GoAir reported a net loss of ₹1,278.60 crore in FY20 compared with a net profit of ₹123.34 crore during FY19 according to latest figures from the Ministry of Corporate Affairs (MCA).
According to figures compiled by research platform Tofler, the airline’s net worth stood negative at ₹1,500 at the end of 31 March 2020 (FY20), while cash and cash equivalents stood at ₹112 crore.
It is of the view that while the current macro environment may not appear to be the most conducive for an airline to launch an IPO, investors are willing to back airline companies as they expect vaccinations to bring economic growth and consumption back on track. Further expectation is that the second wave will not last beyond June and then recovery will seen.
The US market, in the last two months have gone public for the two budget carriers Frontier Airlines and Sun Country Airlines . And it was seen that investors are willing to bet on the aviation industry given the vaccination drive across the globe.