Etihad Bows Out Of Jet Airways Resolution Plan, Offers To Sell Stake

Etihad Airways PJSC has offered to sell its 24 percent stake in Jet Airways Ltd., allowing the Indian carrier’s lenders to decide on their future course of action, according to two people in the know.

After a meeting between Etihad Airways’ Chief Executive Officer Tony Douglas and State Bank of India Chairman Rajnish Kumar, the Abu Dhabi-based airline has stated that it will not participate in the resolution plan for Jet Airways, the people cited earlier said on the condition of anonymity.

In a late evening meeting between SBI and the rest of the lending consortium, bankers were made aware of Etihad Airways’ stance and its reluctance to participate in the resolution plan. Lenders are now mulling an alternative plan for resolving Jet Airways.

According to the first of the people cited earlier, Etihad Airways—which had purchased its stake in Jet Airways in April 2013 for around $379 million—had raised concerns regarding a few aspects of the plan, which the lenders were unwilling to change. The issues include the “right of recompense” that Indian lenders were seeking from it after the resolution plan is implemented. The right would have ensured that after Jet’s lenders took a haircut on their loan exposures, Etihad Airways would repay some part of the haircut, once its equity investment started generating returns.

Another issue was the eventual stake that Etihad would own in Jet Airways, after it infuses the equity necessary to stabilise operations. According to the two people cited earlier, Etihad Airways intended to control at least 26 percent stake in Jet Airways after it infused more equity following the implementation of the resolution plan. Under existing guidelines of the Securities and Exchange Board of India, if an investor intends to control more than 25 percent stake in a company, an open offer is triggered, something Etihad Airways wanted to avoid.

A spokesperson for Etihad Airways told BloombergQuint, "As a minority shareholder, Etihad is working closely with Indian lenders, the company and key stakeholders to facilitate a solution for Jet Airways."

The first person cited earlier also explained that as part of the plan, National Investment and Infrastructure Fund would co-invest with Etihad Airways and control a part of the equity in Jet Airways. With Etihad firmly out of the negotiations, it isn't clear how the fund would invest in the ailing Indian carrier. The Abu Dhabi Investment Authority had invested $1 billion in the fund in October 2017, and had become one of its largest investors.

Meanwhile, previous negotiations with Jet Airways promoter Naresh Goyal to bring in more equity have remained inconclusive.

Lenders led by SBI will be meeting soon to discuss other options, which is likely to include finding a new equity investor for Jet Airways. Not only would the new investor have to buy Etihad Airways’ stake, it would also have to bring in more equity to ensure that the carrier continues operations. Currently, the lending consortium doesn't have interested parties that have firmly expressed their interest, the two people cited earlier said.

SBI Chairman Rajnish Kumar told BloombergQuint that Jet Airways is a valuable asset and all efforts should be made so that corporate debtors are not harmed.

Jet Airways, with a debt of nearly Rs 10,000 crore, has been delaying employee salaries for months. It has also not been able to pay its lessors on time, which has led to many of its aircraft being grounded. On Tuesday, Jet Airways informed stock exchanges that it has had to ground six more planes, due to non-payment of dues to lessors.

Banks will be forced to classify Jet Airways as a non-performing asset on March 31, as it would have completed 90 days without having paid its dues. As per the income recognition and asset classification guidelines, banks will have to provide for at least 15 percent of the loan after the account becomes an NPA. Lenders also have till the end of June to implement a resolution plan in Jet Airways, failing which, they would have to admit the account under the Insolvency & Bankruptcy Code.