Buffeted by headwinds, Go First takes the IPO route to reduce turbulence

When the pandemic hit the global aviation industry, several airlines were bailed out by their governments. In India, with no bailout in sight, some budget airlines have been flying on a wing a prayer. And just when it seemed like they’ll somehow get by, the second covid wave has threatened the survival of mid-sized airlines all over again.

Go Airlines (India) Ltd, which runs the low-cost airline Go First, has come up with a bold solution to escape this predicament. The company plans to make an initial public offering (IPO) of its shares worth 3,600 crore.

“If the company is successful in raising as much as 3,600 crore, it will go a long way in stabilizing its operations,” said an analyst at a domestic institutional brokerage requesting anonymity. The situation is now so bad that the company has said a part of the IPO proceeds will be used to repay dues to Indian Oil Corp. Ltd for fuel supplies.

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A moot question is what valuations the company can expect and how much equity it would be willing to dilute in the IPO. In the past month, the company raised 546 crore from its promoters at a post-money equity valuation of merely 2,600 crore.

If the IPO is at similar valuations, this will result in huge dilution and the promoter stake will fall to below 42% from nearly 100% pre-IPO. News reports suggest it is aiming for higher valuations than SpiceJet Ltd, which has a market capitalization of 4,200 crore.

“At this point, it is anybody’s guess what investors are likely to pay for a struggling airline. It’s likely that Go Airlines will aim for a dilution of around 35%, which essentially entails a post-money equity valuation of a little more than 10,000 crore,” said the analyst mentioned above.

The carrier’s troubles have nearly mirrored those of SpiceJet. Total passengers carried by the two…

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