Pawan Hans diversifies further ahead of IPO

Pawan Hans diversifies further ahead of IPO

6-Jun-2016 Source:

Prior to its intended stock offering, Indian operator Pawan Hans is under some pressure to diversify and be less dependant on offshore helicopter operations.  The company has already announced four regional helicopter maintenance centres and plans to manage heliports.

The local Economic Times news points to the new civil aviation policy proposed by the Indian government, which seeks affordable air connectivity to small cities and towns. The target is to have fares of 2,500 rupees per hour or flight, and the rest will be funded through a subsidy.

Pawan Hans expects to lease in three fixed wing airliners of approx 18-20 seats, and start regional short-haul airline operations on routes which attract this subsidy.  The Initial Public Offering of shares is reportedly expected 2017 or 2018.

Government-owned Oil & Natural Gas Corporation currently holds 49% of the company, with the Indian Government owning 51% direct. The Government has agreed to convert a loan to Pawan Hans to an equity stake to ease the IPO through the capital markets.  While this will take their direct holding up to 69% (according to the Economic Times), any further interest will reportedly be waived.  The loan dates back to 1986, and was initially for 130.91 crore rupees ($19.3M), and none of the capital amount has been paid back.  In the next 15 years, a total of 339.31 crore rupees ($50.0M) of interest accrued, and which point the Government stopped charging interest.  The loan and interest balance of 470.22 crore rupees ($69.3M) is thus being written off.

In financial year 2014-15, Pawan Hans turned over 538.15 crore rupees ($79.3M), and clearly a existing loan balance expressed as 87% of the year’s turnover is enough to make any entrepreneur wince.  If the Government had continued to charge interest, we could be looking at a debt figure of around 850 crore rupees ($125M), with no attempts made to pay back any balances, which seems surprising in a country where the entire economy is doing well, against the global trend.  The situation will no doubt come under close scrutiny by potential investors who would look at how viable the whole business model is to service debt in the future, even though the company’s financial statements will look a whole lot better with the transition of this debt to an equity share.  That’s what an investor’s “due diligence” is all about.

With the IPO plan under review by SBI Capital Markets (the investment banking arm of State Bank of India), the whole restructuring move sounds all rather incestuous.

Pawan Hans has a fleet of 43 helicopters, including 17 365N Dauphins, 15 365N3 Dauphins, 3 Mi-172s, 3 LongRanger IVs, 3 Bell 407s and two 350B3 Squirrels.  It also operates six HAL Dhruv helicopters for the Indian Border Security Force and manufacturers HAL.  The company has plans to add a further 20 helicopters over the next four years, including 10 in the next year.

Jeremy Parkin –

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