Air India PF asset sale to weigh on bond market

Two provident-fund trusts at the Tata-bound carrier are selling an estimated ₹4,500-5,000 crore of bond portfolio, including debt sold by states, the Centre and some corporates, as the management of the corpus will now shift to the Employees’ Provident Fund Organisation (EPFO) after the Tata Group takeover.

Air India has to complete the sale of its assets in the provident fund trusts and the proceeds will be transferred to EPFO.

ET Bureau

“Our process is moving fast and the transfer should happen soon,” a government official told ET on the condition of anonymity.

Air India did not respond to ET’s mailed queries.

Bajaj Finance, Mahindra and Mahindra Finance, Indiabulls, Edelweiss, State Bank of India (SBI), Aditya Birla Finance, Yes Bank, Srei and Reliance Capital are among the other bonds on the offer, three people familiar with the matter told ET.

“About three-fourth of the securities held in the portfolio (in value terms) have changed hands releasing cash to the seller,” said one of the persons cited above.

This move is weighing on the local debt market particularly at a time when bond yields are rising mirroring global yield spikes.

The benchmark bond yield surged 21 basis points this calendar year, pulling prices down.

Local bond houses along with select large private sector banks have bought those papers. Some top-rated public sector company bonds up for sale include those of Power Finance Corporation, Rural Electrification Corp and National Highway Authority of India (NHAI). Some of those securities, not top-rated, yielded 11.68-32.52%, dealers said.

ECL Finance bonds, rated A+ (Stable) and AA-, yielded 32.52% in the secondary market although the non-banking finance company has not demonstrated any sign of stress in recent times. Those bonds sold in 2015 at a high coupon of 11.25% are supposed to mature in May 2025.

“This is a simple demand-supply equation as buyers take advantage of a special situation arising from the seller,” said a senior bond dealer.

Indiabulls Financial Services papers, rated AA (Stable) and AA+ and carrying a coupon of 10.65%, changed hands at 17.95%. Those securities sold in 2012 will mature in June 2027.

However, the trusts have not been able to find buyers of Srei Group bonds, IL&FS, Reliance Commercial Finance and Religare Finvest market sources said.

The government official added that the transfer of PF to EPFO is not a condition precedent for the transfer of Air India to Tatas. “Any delay in transfer to EPFO does not delay the transfer to Tatas,” he said.

According to the plan, AI is to transfer the PF money into EPFO and any deficit in the sale of PF amount will be funded by the Government of India. The government took the responsibility to fund the deficit after employees rejected the move asking them to fund the deficit, if any.

Bonds of Bank of Baroda, Canara Bank and Rajasthan Rajya Vidyut Nigam were also part of the portfolio. Besides, state government bonds such as those of Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal, Gujarat and Maharashtra are also part of the portfolio.