Aviation stocks take off on getting nod to raise money via ECBs

20 Apr 2012 Evaluate

The finance ministry on Thursday announced policy changes for the airline industry, allowing them to raise additional low-cost capital through external commercial borrowings. ECBs will help cash-strapped private carriers, like Kingfisher Airlines and other companies to raise working capital from abroad. However, the Ministry of Civil Aviation (MoCA) and airlines have sought clarity of external commercial borrowing norms for the sector from the finance ministry.

Spicejet is currently trading at Rs. 33.45, up by 0.20 points or 0.60% from its previous closing of Rs. 33.25 on the BSE. The scrip opened at Rs. 33.15 and has touched a high and low of Rs. 34.35 and Rs. 32.50 respectively. So far 2174639 shares were traded on the counter.

Kingfisher Airlines is currently trading at Rs. 19.35, up by 0.25 points or 1.31% from its previous closing of Rs. 19.10 on the BSE. The scrip opened at Rs. 19.50 and has touched a high and low of Rs. 19.65 and Rs. 19.15 respectively. So far 1866400 shares were traded on the counter.

Jet Airways (India) is currently trading at Rs. 358.90, up by 1.85 points or 0.52% from its previous closing of Rs. 357.05 on the BSE. The scrip opened at Rs. 356.70 and has touched a high and low of Rs. 364.60 and Rs. 355.00 respectively. So far 79642 shares were traded on the counter.

The ECB made under this provision would have a maximum ceiling of $1 billion for the entire Civil Aviation sector. The limit for individual airline companies would be $300 million. This limit can be availed either in a lump sum or in tranches depending upon the utilization of the limit during the one year when the facility is available.

Proposals of individual companies would be considered by RBI 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. In order to increase access to ECBs, RBI would consider relaxation in the average maturity period for ECBs above $20 million from five to three years.

This policy decision will provide an additional source of capital at lower cost to the airlines and help them tide over the present financial crunch. The RBI is expected to issue relevant circular/notification giving effect to the aforesaid Budget announcement within seven days.

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