In an apparent surprise move that even the government is unaware of, the heavily indebted Nepal Airlines Corporation has requested $1.01 billion [Rs135 billion] in funding from foreign lenders and invited a written proposal from potential lenders on Tuesday.
This is the largest loan that a Nepali business has applied for from foreign lenders thus far.The expression of interest (EoI) issued on the corporation’s website on Tuesday has invited national and international government parties and agencies, national and international banks and financial institutions, international lender companies, agencies licensed to provide loans, international organisations and other lenders.
The lenders can submit their proposals by March 7.As per the proposal, Nepal Airlines has sought Rs55 billion [$415 million] for existing loan management or for a swap of its existing loans with the credit received from international lenders.Another Rs75 billion [$565 million] has been sought for aircraft purchase and Rs5 billion [$38 million] for hangar setup.The carrier said in the proposal that the loan would be on a normal fixed interest rate with a repayment period of 25 years subject to extension in mutual understanding.
“We have decided to take international loans. The process follows the government’s approval and has been passed by Nepal Airlines Corporation’s board of directors,” said Ramesh Poudel, spokesperson for Nepal Airlines.“The objective of the international loan is to strengthen the Nepal Airlines’ fleet and swap the existing loans with the loan taken from the international lenders, which could be available at less than 5 percent an annum.” Currently, Nepal Airlines has a loan of Rs48 billion, which it took to purchase two Airbus A320s and a pair of Airbus A330s jets.
The corporation has been paying a 10 percent annual interest to domestic lenders.On June 18, 2013, Nepal Airlines signed a Rs10 billion loan agreement with the Employees’ Provident Fund (EPF) to buy two narrow-body A320 jets. The interest on the loan was set at 12 percent a year.Again, on June 12, 2017, Nepal Airlines secured a Rs12 billion loan from Citizen Investment Trust (CIT), a day after signing a credit deal for Rs12 billion with the EPF to buy two wide-body Airbus A330 jets. The interest rate on both loans has been fixed at 9 percent per annum, and the repayment period is 15 years.
As per the proposal, joint ventures of lenders are not eligible.Lenders have been given two financing options to avoid foreign exchange risk. In the first option, financing will be in the Nepali rupee and repayment in the Nepali currency with a fixed interest rate for the project period. The financing should be routed through “A” class commercial banks of Nepal.In the second option, financing shall be in the US dollar (existing rate) and remain at a fixed exchange rate, subject to a fall in the exchange rate of the dollar, and with a fixed interest rate for the total project period.
As per the proposal, the lender should have the licence to conduct financial transactions internationally or provide foreign loans in Nepal.Likewise, the lenders should have financed at least two major projects worth $1 billion each in the past seven years. The net worth of lenders has to be at least 10 times the funds proposed to Nepal Airlines on average in the past three years.The lenders’ liquid assets need to be at least twice the total fund proposed to Nepal Airlines in the latest audit report. The lenders should fully comply with national and international legal systems on anti-money laundering and prevention of financial investments in terrorism activities.
As often happens, the national flag’s carrier decision has raised eyebrows in political and bureaucratic circles. Dhani Ram Sharma, spokesperson for the finance ministry, who sits on the Nepal Airlines board of directors, said he was not aware of the development.As the highly leveraged Nepal Airlines has no collateral to issue to obtain loans, the government or the finance ministry should act as a guarantor.
Finance Minister Prakash Sharan Mahat told the Post that he has no idea about the development. “We have been repeatedly telling Nepal Airlines to restructure, before planning any expansion. I don’t know what’s going on.”In the previous two plane purchase deals too, the finance ministry has acted as guarantor.Poudel, the Nepal Airlines spokesperson, however, said this is an EoI, the initial phase to understand whether lenders are interested in the project. “After we get proposals from them, they will be shortlisted,” said Poudel. “Then, the proposal will be tabled at the Cabinet for approval.”
Several attempts by the Post to contact Tourism Minister Sudan Kirati, Tourism Secretary Deepak Kafle and Tourism Joint Secretary Hem Raj Tamang failed.Buddi Sagar Lamichhane, who looks after aviation affairs at the tourism ministry, said he is unaware of the developments.The national flag carrier is known for scandals. Once the country’s largest employer and the biggest earner of foreign currency, Nepal Airlines was brought down by the two evils that plague most other public bodies in Nepal—mismanagement and corruption.
Government incompetence, corruption and policy paralysis have left it in tatters.
Source: Here