Fitch: India's National Aviation Company's NCDs

The rating reflects absolute, unconditional and irrevocable guarantee extended by the Government of India (GOI, foreign currency issuer default rating, 'BBB-'/Stable) which covers for both timely repayment of principal and interest. The rating is further supported by the guarantee structure, which ensures due and timely payment of debt service. The guarantee is legal, valid and binding even in the event NACIL goes insolvent and files for protection.

NACIL has booked heavy losses at the EBITDA level over the past two years, primarily due to increased competition in India, high operating costs and fluctuations in fuel prices. Although the company is currently facing substantial operating losses, it is currently working on a plan to reduce the same through improvements in efficiencies and operating costs. In the interim, the agency expects GoI to continue supporting NACIL given the latter's huge commitments to the purchase of new aircrafts coupled with the operating losses. This is demonstrated by INR8000m equity support provided by the GoI apart from the unconditional guarantee given for this issuance. GoI, through Ministry of Civil Aviation would device a strategy to reduce the losses so that NACIL can come out from the present situation.

NACIL's bond issue will have tenure of 10 years with principal redemption after 10 years from the date of allotment. NACIL will open a no-lien designated account with a designated bank (to be finalized) to meet its bond obligations. NACIL will credit the requisite funds into the designated account 60 days prior to each due date for payment of interest and/or principal. In the event of a shortfall in the account the Trustee(IDBI Trusteeship Services Limited) shall forthwith invoke the Guarantee from the GOI by sending a notice of invocation to GoI within seven days so that necessary arrangements can be made. The GoI shall deposit the funds in the trustee account three days before the due date.

Fitch notes that failure of the GoI to meet timely obligation on invocation of guarantee, non-compliance of the payment mechanism for repayment of the rated instrument, and any change in the GoI's policy that provides protection to NACIL from its creditors in case of its insolvency will lead to a downward rating review.

NACIL is a fully-owned GoI enterprise. NACIL's main services are passenger service, cargo service, maintenance and repair service and ground handling services.