NAC seeks Rs 20bn equity investment

September 25, 2017

The Himalayan Times, 24 Sep 2017 

Nepal Airlines Corporation (NAC) has requested the government to inject fresh capital worth Rs 20 billion as equity investment in the state-owned enterprise, which is distressed with high debt compared to equity.

Currently, NAC’s debt to equity ratio is 76 per cent, which will increase to 92 per cent after it obtains loan for the purchase of two wide-body aircraft. NAC at present already has taken loans worth Rs 17 billion from the Employees Provident Fund (EPF) and Citizen Investment Trust (CIT). This figure will rise to Rs 33 billion after the second instalment of loan committed by the EPF and CIT to purchase wide-body aircraft is disbursed.

As NAC is planning to bring two aircraft in March and June of next year, it has urged the government to raise the equity investment to improve the financial health of the national flag carrier.

Due to high debt to equity ratio NAC has not been able to obtain loans from other financial institutions to expand its business. It has obtained loan from government-owned financial institutions on the government’s guarantee to purchase two wide-body aircraft. NAC is planning to add more aircraft in its international fleet.

“We are planning to purchase two more narrow-body aircraft to add more flights to the Gulf countries as a large number of migrant workers are employed in the Middle East,” said Sugat Ratna Kansakar, managing director of NAC. “NAC needs to expand its flight network and add more flights in the potential destinations, which will have a multiplier benefit in the country’s economy,” he added.

Currently, NAC has two narrow-body Airbus aircraft and one narrow-body Boeing aircraft in its international fleet, which have been flying to eight destinations.

Kansakar further said that the government needs to inject more capital in the corporation to make it a commercially viable entity. “As NAC is also planning to bring in a strategic partner, the debt-equity ratio of the government-owned entity needs to be justified,” he said. The national flag carrier will also be able to obtain loans from private financial institutions if its debt to equity ratio is maintained at an acceptable level for financial institutions to issue loans.

The Ministry of Culture, Tourism and Civil Aviation — parent ministry of NAC — has forwarded NAC’s proposal to the Ministry of Finance. However, according to authorities at the Finance Ministry, the ministry is not convinced with NAC’s proposal.

However, Kansakar has said that the MoF needs to support the national flag carrier because the country will have multiplier benefit from the growth of tourism sector in the country along with expansion of flight network of the national flag carrier. “No country without a strong network of its national flag carrier has achieved high growth in tourism sector.”

According to Kansakar, Kathmandu remains one of the expensive destinations with regards to airfare due to lack of aircraft in NAC’s international fleet. “International airlines will bring down the airfare only if the national flag carrier can intervene by offering lower fares,” he asserted.