InterGlobe Aviation Ltd, the operator of India’s largest domestic carrier IndiGo, said on August 10 that it will raise up to Rs 4,000 crore via qualified institutional placement. The move comes as the company looks to manage cash during the COVID-19 pandemic which has hit its operations.
What is QIP?
Qualified Institutional Placement is simply the means whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares allotted to a Qualified Institutional Buyer (QIB).
This is the only other speedy method of the private placement, apart from preferential allotment whereby a listed company can issue shares or convertible securities to a select group of persons. QIP tops the other methods because the issuing firm does not have to undergo elaborate procedural requirements to raise this capital.
Why was it introduced?
There was a growing concern from Indian regulators Before the QIP, that its domestic companies were accessing international funding too readily via American depository receipts (ADRs), foreign currency convertible bonds (FCCBs) and global depository receipts (GDR), instead of Indian-based capital sources. The sole purpose of QIP was to encourage Indian companies to raise funds domestically instead of tapping into overseas markets.
Benefits of QIP
QIPs are helpful for a few reasons. The usage of QIP saves time as their issuance and the access to capital is far quicker than through a follow-on public offer (FPO). The speed of QIPs are higher because they have competitively fewer legal rules and regulations to follow, which also makes them much more cost-efficient. Tgey have fewer legal fees and no cost of listing overseas
COVID-19 impact on the airline industry
The pandemic destroyed ticket sales and stripped companies of cash, making the airline industry the most affected sectors out of all. Due to border restrictions and a lack of appetite for travel, Airlines around the world have drastically cut back on flights, particularly internationally, because people are contracting the virus.
Global airline passenger revenues is expected to drop by USD 314 billion this year because of the COVID-19 crisis.
compared to last year, Airlines in the Asia-Pacific region would record the largest revenue drop of USD 113 billion in 2020.
With prolonged travel restrictions in place around the world, one of the major challenges faced by the aviation industry is a massive plunge in cash reserves as fleets remain grounded for almost a month now. Many Indian Airlines are close to bankruptcy because their cash reserves are running out amid the nationwide lockdown.
Because of lockdown, Indian airlines are losing about ₹75-90 crore daily.
Hit by COVID-19 Indigo resorting to cost-cutting measures
Indigo on July 29 announced a massive loss of ₹ 2,844 crore for the quarter ended June 30. In the corresponding period a year ago, it had posted a net profit of ₹ 1,203 crore.
IndiGo on July 27 said it is implementing “deeper” pay cuts of up to 35 percent for its senior employees in order to reduce its cash outflow amid the coronavirus pandemic.
IndiGo had implemented pay cuts of up to 25% for its senior employees, since May.
The airline’s announcement on July 20 that it would lay off 10% of its workforce lead to deeper pay cuts.
Scheduled international flights have been suspended in India since March 23 due to the coronavirus-triggered lockdown.
“The aviation industry is going through a crisis of survival and therefore, our cash balance remains our number one priority. However, we also recognize that major disruptions offer companies opportunities for improvement in product, customer preference, costs and employee engagement,” CEO Ronojoy Dutta had said.