Financial Revival: Air Mauritius Converts Rs 8 Billion Debt into Equity

Air Mauritius has managed to convert a colossal Rs 8 billion in debt into equity, paving the way for the national airline’s much-anticipated return to the skies. This vital restructuring comes as Air Mauritius confronts the harsh realities of recent insolvency, a situation exacerbated by a negative equity position of approximately €208.8 million, equivalent to around Rs 10.3 billion.

The monumental step of converting this debt, previously owed to its parent company, Airport Holdings Ltd (AHL), into Non-Voting Convertible and Redeemable Preference Shares (NCRPS) represents a significant turning point.

While these shares do not carry voting rights, they do hold the promise of being transformed into ordinary shares at a later date, thus allowing AHL a potential re-entry into meaningful equity involvement.

Kishore Beegoo, the chairman of Air Mauritius, welcomed this recapitalisation, asserting that the airline is now “better capitalised.”

This change is expected to strengthen ties with suppliers, banks, and other creditors.

A pressing negative equity made securing credit nearly impossible before this turnaround, placing the airline in an incredibly difficult situation.

“With a negative equity of Rs 10 billion, it was an uphill battle to access credit, straining our operations,” he noted.

Earlier this year, Prime Minister Navin Ramgoolam publicly declared that Air Mauritius was technically insolvent under the Companies Act, casting doubt over its future.

However, recent developments have allowed the airline to breathe a sigh of relief, distancing it from the immediate threat of further financial intervention or administration.

Despite this triumph, a remaining Rs 2 billion in negative equity still poses a challenge. However, Beegoo is optimistic, stating that efforts are underway in collaboration with the government to tackle this issue.

Several avenues for funding are being explored, including possible financial support from the Mauritius Investment Corporation (MIC).

Additionally, there are reports of approximately €25 million (around Rs 1.2 billion) lying dormant within Air Mauritius’s accounts, funds collected from ticket purchases by passengers who ultimately did not travel.

This money, valid for a year, could provide crucial support to help the airline stabilize.

Looking ahead, Beegoo emphasised that the new Budget Operating Plan, set to take effect from 1 April, aims to clean up operations and enhance financial efficiency.

The ambitious goal is to recover Rs 2 billion within the next year, with an aspiration to return to profitability by 2026.

It’s also worth recalling that to escape voluntary administration, Air Mauritius was granted a lifeline of Rs 9.5 billion from AHL in 2021.

Initially classified as debt on the airline’s balance sheet, this sum began a complex journey.

In 2022, then-CEO of AHL, Ken Arian, had stressed the importance of converting this debt into NCRPS by 2024.

In the meantime, AHL had also taken over several subsidiaries of Air Mauritius, as well as its headquarters, the Paille-en-Queue Building, for around Rs 650 million, reducing the debt to just under Rs 9 billion.

Under pressure from then-Finance Minister Renganaden Padayachy last June, AHL distributed nearly Rs 1 billion in dividends to a government that sorely needed funds, subsequently requesting Rs 800 million in repayment from Air Mauritius.

This action effectively lowered the debt to about Rs 8 billion.

Initially, the conversion of this debt into NCRPS was expected to happen last year, but previous management under CEO Charles Cartier proposed a different approach, favouring subordinate shares—an option that would have unfavourably affected AHL’s holdings.

Consequently, AHL resisted this plan, fearing it would lead to significant financial losses.

In a shift from previous directives, the current management has accelerated the process of converting the debt into NCRPS, aligning with Arian’s original vision.

A key resolution recently passed at a special general meeting now permits this transformation, allowing the Rs 8 billion debt to be recognised as equity.

As part of the new terms, AHL has the option to convert these NCRPS into ordinary shares within the next five years, a prospect that could significantly alter the ownership landscape of Air Mauritius.

Nevertheless, the future remains uncertain. Raj Ramlugun, a former executive and minor shareholder, expressed concerns, noting:

“The situation is still confusing. Many questions about the future trajectory of Air Mauritius persist.”

As the airline embarks on this hopeful journey of recovery, the stakes are indeed high, and the months ahead will prove crucial in determining whether this revitalised approach can successfully steer Air Mauritius towards a brighter future.

Source: Defi Media