Nearly six months after State Bank of India began scrambling to stitch together a resolution plan for Jet Airways (India) Ltd., the country’s largest lender finds itself back at square one.
In bids closed last week, Etihad Airways PJSC offered to retain its 24 percent equity stake in Jet Airways but stopped short of offering any comprehensive resolution plan.
With no other serious bidders emerging, lenders led by SBI are now preparing to begin a fresh search for a majority investor in Jet Airways. According to two people in the know, lenders took the call to initiate another search process at a meeting on Monday. The people spoke on conditions of anonymity as the discussions are confidential.
In its offer, Etihad Airways has offered to infuse enough equity so as to maintain its 24 percent stake in Jet Airways. This means that the lenders still need to find a majority equity buyer who will infuse the bulk of the equity needed for the beleaguered airline to fly again.
“Etihad re-emphasises that it cannot be expected to be the sole investor, and that, among other requirements, additional suitable investors would need to provide the majority of Jet Airways’ required recapitalisation,” an Etihad spokesperson said when asked about the airline’s proposal for Jet Airways.
The lenders do not have any preferred pool of investors, and anyone, including current promoter Naresh Goyal, could be eligible to bid for the company, if they were to bring in the required funds and expertise, the two people quoted above said.
Lenders are yet to finalise how they will go about this proposal. They may choose to open a fresh round of bidding for Jet Airways, or they could approach a select group of potential investors. Three entities — TPG Capital, Indigo Partners and National Infrastructure Investment Fund — had submitted expressions of interest last month but did not submit final bids.
According to an internal study conducted earlier this year, Jet Airways needed at least Rs 4,000 crore to stabilise its operations. However, now that the airline is grounded, the required capital would also go up considerably, the first person quoted above said.
Lenders have also received unsolicited bids from a British entrepreneur Jason Unsworth, a London-based investment firm Adi Group and the employees’ association of Jet Airways. The lending consortium have not opened these bids as they are waiting for legal advice on how to deal with them. These bidders did not submit EoIs but submitted a final bid before the deadline ended.
The sale process for Jet Airways now seems like a scheme for buying more time. It isn’t SBI’s job as a bank to sell companies like Jet Airways. It should have acted when necessary and provided urgent funding to stabilise the operations. If the airline was still flying and had a 100 planes in its fleet, new investors would have found it more lucrative to invest. Now, it is unlikely that a big investor will find in Jet Airways.Mark Martin, Founder And CEO, Martin Consulting
This isn’t the first time that Etihad Airways has put Jet Airways’ lenders in a quandary. In March, after weeks of negotiations, the Abu Dhabi-based airline decided that it did not want to support the resolution plan that the lending consortium had prepared for Jet Airways.
At the time, Etihad had offered to put in more equity in Jet Airways on the condition that it does not have to participate in an open offer, which is required when an investor raises their stake in a company beyond 25 percent. The airline had also sought that the lenders give up their “right to recompense”, which was a part of the resolution plan. Eventually, the plan fell through and SBI announced a sale process for Jet Airways in April.
On April 17, Jet Airways announced that it is stopping all flight service till further notice. This prompted the government to reallocate slots allotted to Jet Airways to other airlines on a temporary basis. Experts had said without flight operations or slots, new investors might find little in Jet Airways.
The air carrier has a debt of over Rs 10,000 crore. SBI and Punjab National bank with nearly Rs 2,000 crore each are the two main lenders involved in the process. In the January-March quarter, SBI classified Rs 1,220 crore worth loans to Jet Airways as non-performing asset.
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