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Lenders want Naresh Goyal, Etihad to salvage Jet Airways

March 15, 2019 12:11 IST

The resolution plan has to be put to work this month itself. Jet has a debt of over Rs 8,000 crore and needs to ma­ke repayments of up to Rs 1,700 crore by the end of Ma­rch.

Jet

IMAGE: Naresh Goyal (L), chairman of Jet Airways, speaks with James Hogan, chief executive of Abu Dhabi's Etihad Airways. Photograph: Anindito Mukherjee/Reuters

Lenders to cash-strapped Jet Airways on Thursday asked the two stakeholders - Nar­esh Goyal and Eithad - to promptly pitch in with their contribution to salvage the situation.

The decision to provide emergency funds to the ailing airline will be taken collectively and not on a standalone basis, said lenders.

 

“We have made our stand clear. We (lenders) are supporting the arrangement (resolution).

"Let us see the resp­onse from other stakeholders. We will accordingly take a call,” said Dinabandhu Moha­patra, managing director (MD) and chief executive officer (CEO), Bank of India (BOI), on the sidelines of a banking seminar organised by IBA.

Sunil Mehta, MD & CEO of Punjab National Bank, said lenders are going (on decision to lend further to Jet Airways) coll­­­ectively.

The resolution will come with the participation of the stakeholders.

On the emergency funding to the loss-making carrier, BOI chief said lenders have made it clear that all stakeholders should pitch in.

Two senior executives of the other two public sector banks said time is running out.

The situation is looking grim as more and more Boeing 737 MAX 8s are being grounded.

The resolution plan has to be put to work this month itself.

Jet has a debt of over Rs 8,000 crore and needs to ma­ke repayments of up to Rs 1,700 crore by the end of Ma­rch.

The airline has, however, alr­eady defaulted on repayme­nts on external commercial borrowings due to pa­ucity of funds.

The acute liq­uidity crunch has forced it to gro­und aircraft, shut down sta­tions, and delay salary pa­y­ments to its pilots and engineers along with other senior staff.

It has been looking at various ways to raise funds. Last month, shareholders of Jet Airways approved conversion of loans into shares and other proposals.

On Febr­uary 14, the Jet board appr­oved a bank-led provisional resolution plan, whereby len­ders would beco­me the largest shareholders in the airline.

Following approval from shareholders, a part of the debt would be converted into 114 million shares at a price of Rs 1 apiece, according to the Res­erve Bank of India norms.

Jet stares at another default of $109 million

Jet Airways could be staring at another default of $109 million, which it has to pay by March 28 to the HSBC Bank Middle East as the second tranche of the $140-million loan it had taken in 2014 and for which the Abu Dhabi-headquartered airline stood guarantor.

Jet had, on March 11, defaulted on its external commercial borrowings of $31 million, payable to HSBC and guaranteed by Etihad Airways, which owns 24 per cent in Jet.

Jet, in a letter to HSBC on March 11, had said it is going through a severe liquidity crunch and is working on a bank-led resolution plan for its revival.

The plan, it has told the bank, is in the final stages of seeking regulatory and corporate approvals and, pending these approvals, “the company is unable to repay tranche A of $31 million” to the bank.

Etihad and Jet did not respond to queries.

Sources, however, said Etihad has protected its interests (as guarantor) because in the memorandum of understanding between Jet founder Naresh Goyal and it, the firm incorporated a clause under which prior to interim financing Jet had to pledge 15 per cent of its shares in JetPrivilege — the loyalty programme unit — in favour of HSBC as security for the $140-million loan.

JetPrivilege, in which Jet has 49.9 per cent (Etihad has 50.1 per cent), according to estimates, has an enterprise value of around Rs 4,000 crore.

The airline, which has grounded 59 (nine of them on Tuesday and Wednesday) planes, constituting over 40 per cent of its fleet, needs a fresh infusion of cash immediately.

The bank-led interim financing plan envisaged an infusion of Rs 4,000 crore by stakeholders.

But the plan that Etihad would put in Rs 750 crore as its share of the financing arrangement by early this week, after which the lenders will put in a matching amount, has been delayed as the final go-ahead is pending from the foreign carrier.

The loan deal was signed between Jet and HSBC in January 2014 and restated by an amendment in March the same year.

The $140-million loan was drawn by the airline in two tranches on March 5 and March 27, 2014, for five years with bullet repayment obligations at the end of the fifth year.

According to a senior banking official representing the lenders, Etihad has not communicated to them its decision as to when it will disburse its share of the interim funding or if it needs more time.

Goyal, in a recent communication to Etihad group chief executive officer Tony Douglas, had made it clear the Abu Dhabi-based carrier must infuse Rs 750 crore urgently.

Last week, Goyal and Etihad entered into a deal, spelling out the equity contributions of the partners, ownership and board structure.

The deal was agreed upon after months of disagreement between the two on shareholding and control issues.

As part of the lenders-led resolution plan, Etihad is expected to infuse Rs 1,600-1,900 crore for 24.9 per cent (up from 24 per cent).

Lenders, led by SBI, would infuse Rs 1,000 crore for 29.5 per cent and the proposed new investor - National Investment and Infrastructure Fund - would bring in Rs 1,600-1,900 crore for 20 per cent. Goyal’s ownership would fall from 51 per cent to 17.1 per cent.

Surajeet Das Gupta

Abhjeet Lele in Mumbai
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