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Wednesday, April 19, 2006

A-I, Indian IPOs await final word on merger

The stock market may be on fire but the big-ticket IPO plans for Air-India and Indian are being put on ice. The government is toying with the idea of floating a consolidated IPO after merger of the two public sector airlines, reports The Economic Times.

The move follows apprehensions that individual IPOs for the two government owned carriers could create obstacles for the proposed merger of A-I and Indian. The final decision on the merger plan would require approval from the Union Cabinet and is not expected in the immediate future.

“In case the government clears the merger proposal, there will be no point in doing individual IPOs for the two airlines,” highly placed government sources said. Therefore, the two companies are taking it easy on the IPO front. “The focus is now on the benefits from synergy of operations. Work related to valuation, however, would go on,” the sources added.

The government can bring together A-I and Indian through a full-fledged merger or by way of a holding company. In case, the holding company option is cleared, then the two proposed IPOs could move forward as planned. If the Cabinet approves the merger option, then a consolidated IPO would be a better option. As of now, the view within the government is in favour of a full merger.

Civil aviation minister Praful Patel feels that putting together the strengths of A-I and Indian would help in facing increasing competition from foreign airlines. A-I has expanded its international network in a big way during the past couple of years while Indian has established strong connectivity in the domestic circuit.

Since the merger would also mean possibility of a better premium for the consolidated IPO, it is felt that it is better to wait, rather than go ahead with the original plan of individual IPOs. In any case, the merger plan is also getting more support within the government following Jet Airways’ takeover of Air Sahara. While the need for consolidation has been emphasised by the Rs 2,300-crore (Rs 23 billion) takeover, the proposed merger of A-I and Indian, needs to be a smooth affair in order get a thumps-up from the market.

The government also needs to act fast since a number of airlines including Air Deccan have already lined up to tap funds from the capital market. While the low-cost carrier’s IPO is expected next month, Jagson Airlines said last week, that it may tap the market next year. In any case, UB Group’s Kingfisher is also expected to opt for an IPO once its initial operations stabilise.

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