Jet Airways’ Lenders To Ask Goyal, Etihad To Pledge Part Stake To Issue Rs 1,500-Crore Debt

Lenders to Jet Airways (India) Ltd. are finalising a plan to infuse Rs 1,500 crore into the struggling carrier through debt against promoter shares, according to two people aware of the development.

The consortium of lenders, led by State Bank of India, may ask the airline’s founder Naresh Goyal and international partner Etihad Airways PJSC to pledge part of their stake in the company to approve the debt, the people quoted above told BloombergQuint requesting anonymity. The pledged equity, they said, would be kept in a trust and will be marked-to-market regularly.

SBI has already drafted the plan and circulated it among all lenders in the consortium for their approval, one of the two people quoted above said. Final approvals are still pending.

SBI, Jet Airways and Etihad Airways have yet to respond to BloombergQuint’s emailed queries.

Rajnish Kumar, chairman at SBI, had earlier told BloombergQuint that banks would be issuing Rs 1,500 crore debt support using an unlisted security. The company, in a statement after the lenders agreed to provide a lifeline, had said the funds would be used to pay lessors, vendors, creditors and employees in a phased manner.

With a debt of more than Rs 10,000 crore, Jet Airways is struggling to pay its dues, prompting an exodus of employees and planes being grounded by lessors. The airline yesterday informed the stock exchanges that it had to ground 15 more planes due to non-repayment of dues. Jet Airways is currently operating only 28 planes in its fleet, Bloomberg reported quoting the Directorate General of Civil Aviation. Jet Airways, however, clarified that it is flying under a curtailed schedule with enough aircraft and is compliant with all applicable rules.

Earlier, a resolution plan prepared by SBI was not accepted by Etihad Airways and the Abu Dhabi-based carrier offered to sell its stake in Jet Airways. In a last-minute alternative plan, lenders decided to take over the majority equity of the debt-laden carrier, following which Goyal and his wife stepped down from the board. Goyal also stepped down from his position of chairman at the airline. Besides, the lenders mandated the creation of an interim management committee to address the daily business needs of the carrier.

The lenders are now in the process of looking for buyers who will take over the majority equity stake and infuse more capital into the company. BloombergQuint had earlier reported that SBI had reached out to Tata Group and TPG Capital for a potential sale of the stake. The talks are still at a preliminary stage. The lenders, however, had determined that a new buyer would need to bring in capital worth Rs 4,000-5,000 crore into the company.

Jet Airways required Rs 3,500-4,000 crore to stabilise its operations. The new buyer would also have to repay the Rs 1,500 crore debt support.

Impact Of Supreme Court Decision

Jet Airways was one of the large cases being resolved under the inter-creditor agreement, following the Reserve Bank of India’s Feb. 12, 2018 circular for debt restructuring. Lenders had swung into action after the airline announced on Jan. 1 that it defaulted on its repayment obligations. As per the RBI’s Feb. 12 circular, the lenders had 180 days to implement a restructuring scheme, failing which the account would have gone for insolvency proceedings.

As the Supreme Court struck down the RBI’s circular, the lenders aren’t clear about how to proceed with the debt restructuring in Jet Airways. As per the plan that is being implemented currently, the airline would issue 11.4 crore shares to the lending consortium, which would make them the largest shareholder with a 50.5 percent stake. This stake, however, was to be valued at Re 1, as per the RBI’s circular.

In the absence of the circular, banks do not have the requisite relaxations from the Securities and Exchange Board of India, which empowered them to take over the equity.

Lenders will be seeking some clarity from the RBI and the government on how to treat this equity stake on their investment book, the first of the two people quoted above said.

The way the RBI introduced the restructuring guidelines, without consultation or approval from the government, was the biggest bone of contention. The Supreme Court said any action initiated under the circular, including insolvency proceedings, will have to be reversed. The apex court, however, did not pose any problem with other parts of the circular.

It is possible that the RBI and the government could come together to issue a fresh set of guidelines, which could help rule out any uncertainty in restructuring an account, according to the first person quoted above.