After DBS “rescues” Chennai bank, SIA now in talks with Tata to “save” Air India

It was reported earlier this month that DBS India has gone ahead to merge with the struggling Lakshmi Vilas Bank (LVB) based in Chennai (‘Indian govt seizes Chennai bank with “serious governance issues” and “forces” merger with DBS Bank India‘).

LVB has been in a bad shape for some times and desperately gasping for capital. Not only did its capital adequacy ratio fail to meet regulatory norms, but the ratio had also turned negative in the Sep quarter. Its financial position has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net-worth.

In addition, LVB is also experiencing a continuous withdrawal of deposits and low levels of liquidity. It has experienced serious governance issues and practices in recent years, which have led to a deterioration of its financial situation.

Fortunately, DBS India came to the rescue and has announced that it would inject an additional capital of Rs2,500 crore (S$450 million) into the merged entity after acquiring LVB.

Indeed, Bloomberg has described the merger as a “rescue effort” by DBS Bank. An institutional investor advisor told Bloomberg that LVB was “pretty much insolvent” and that “the writing has been on the wall for a while”.

SIA targets beleaguered Air India

After news of DBS India “rescuing” LVB came out, news of SIA also attempting to “rescue” another Indian entity, Air India, has emerged.

It was reported by CNBC yesterday that SIA is currently in talks with its Indian partner Tata Group to jointly bid for the loss making Air India (‘Tata in talks with Singapore Airlines to bid jointly in Air India, says report‘, 27 Nov).

The bid will be through Vistara, a joint venture between Tata Group and SIA. Vistara commenced operations in 2015 with its inaugural flight between Delhi and Mumbai.

In its latest quarterly report, Air India incurred a net loss of about Rs2,570 crore (S$465 million) in the first quarter of 2020-21 as compared to a net loss of Rs785 crore (S$142 million) in the corresponding period a year ago.

“Air India Limited has been suffering continuous losses. The COVID-19 pandemic along with its related impact on aviation industry has further worsened the financial position of the company,” Indian Civil Aviation Minister Hardeep Singh Puri admitted.

Since July last year, a total of 50 Air India pilots submitted their resignations and started serving the notice period. However, they subsequently requested to withdraw their resignations.

Currently, Air India is sitting on a debt of Rs58,000 crore (S$10.5 billion).

An airline analyst commented, “The acquisition of Air India by Vistara could result in a substantial outlay of funds and assumption of risk by the shareholders of Vistara. SIA and Temasek would have to evaluate whether they are willing to make an investment and assume risk of such high magnitude, especially in times when there is a huge slump in the civil aviation space.”

Singapore investments into Indian assets were only possible thanks to the signing of the India–Singapore Comprehensive Economic Cooperation Agreement (CECA) between Singapore and India in 2005. At the time of the signing, PM Lee said that CECA will create many opportunities for businesses and individuals on both sides.

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