People watch as a Jet Airways (India) Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

SBI Chairman Says Banks To Exit Jet Airways In Two Months

Lenders to Jet Airways (India) Ltd. are confident of exiting their majority shareholding in the airline within two months, Rajnish Kumar, chairman, State Bank of India (SBI) told BloombergQuint. There is enough investor interest in the airline and the door is open to all interested parties including existing shareholders, Kumar said.

In a last ditch effort to save the airline, lenders to Jet Airways have agreed to take over 50.5 percent stake in the airline. The stake issued to the banks will be valued at Re 1 on their books. As part of the resolution plan, promoter Naresh Goyal, his wife Anita Goyal and one representative of Etihad Airways PJSC will step down from the board of the airline.

An interim management committee will be appointed to run day-to-operations until lenders find a buyer for their majority stake.

Kumar expects the entire process to be completed in two months.

Our assessment is two months. And by that time we expect to complete the sale process. I am not giving any guarantee because a banker’s guarantee has a lot of value. I am not giving any guarantee that everything will be positive. I am only giving you my assessment of the situation. But there is a good possibility that lot of investor interest will come in.
Rajnish Kumar, Chairman, State Bank of India

Also read: Jet Airways: Naresh Goyal Steps Down, Lenders Extend Lifeline

As part of the resolution plan, the lenders will also provide immediate debt support worth Rs 1,500 crore, the airline informed stock exchanges on Monday.

The airline will leverage the funding to partly clear pending dues towards lessors, vendors, creditors and employees in a phased manner, the company said.

The move will see Jet Airways re-deploy several of its grounded aircraft back into its network, helping renew many of the routes it had temporarily suspended, which will help restore normalcy of operations...
Jet Airways Statement

According to another banker in the know of the developments, the lending consortium will meet later on Monday to determine a priority table. This will be used to determine how the interim financing will be split between payment of dues to lessors, employees of Jet Airways and other funding needs. The funds, however, may not prove adequate. A second person familiar with the matter had estimated the funding requirement at Rs 3,500 crore.

According to Kumar, the interim financing will be adequate for a two-month period and will be disbursed in the form of secured financing.

The restructuring of equity and debt is in such a manner that the facility which is being proposed is fully secured. It (Rs 1,500 crore funding) will be likely a 10-year instrument, details of which will be given out. It will not be a listed debt instrument.
Rajnish Kumar, Chairman, State Bank of India

Also read: Jet Airways Rescue: Lenders Are Staring At A Catch-22 Situation

Bankers had little choice but to move forward with taking over majority equity in Jet Airways. Months of negotiations to get Goyal and Etihad to commit more funds to the airline proved to be futile. After initially showing interest, Etihad, last week, informed lenders that they are willing to sell their stake at Rs 150 per share, BloombergQuint reported last week.

With no obvious white-knight in sight, banks had no choice but to step in.

Jet Airways has a debt of Rs 10,000 crore. SBI and Punjab National Bank have the largest exposures worth around Rs 2,000 crore each. The airline had informed stock exchanges on January 1 that it had defaulted on its dues.

According to the February 2018 guidelines of the Reserve Bank of India (RBI), banks are expected to finalise and implement a resolution plan for a defaulting company within 180 days of the first default. If they fail to do that, they will be forced to admit the company for insolvency proceedings.

While speaking to BloombergQuint, Kumar stated that if the current plan is construed as restructuring under RBI guidelines, they would need to mark down Jet Airways as a non-performing asset (NPA) by March 31. A NPA classification attracts a minimum provisioning of 15 percent, as per the income recognition and asset classification guidelines of the RBI.

Watch the full interview here:

Edited excerpts from the interview :

The lenders have constituted a management committee and they are willing to fund up to Rs 1,500 crore by way of debt.

The resolution plan for Jet Airways is almost ready. The work has been going on for the last four months. But, because of some issues where some JV partners could not come at common terms, so the sway for new investors to come in was that the hope around ownership and new investment is settled by the board of Jet Airways which they reportedly did today, and they have informed the stock exchange. Today’s development ensures that new investors can evaluate the value of that enterprise and they can submit their plans as to how they will revive. The process will start immediately. We will be appointing merchant bankers to kick-start the process. In fact, as I was mentioning that a lot of preparation and ground work has already been done. It is a meal ready to be served. We have to see who wants to eat it and what is their requirement.

Will this be a valuation-linked exercise or a time-bound exercise?

Both. Time is of essence because of the condition of the company. In such a scenario, lenders would like that they exit this investment as quickly as possible and give a chance to new investors to revive it. But Jet Airways’ lenders believe that it is a great brand and has great value. The time that was wasted in ironing out the differences between the promoters, it has led to the situation that we are in today. But it can be revived, we are very confident.

Rs 1,500 crore of initial funding will be provided by lenders to run the operations at the airline. Is that correct?

This is a priority funding which is needed. This is sufficient to revive Jet airways in our assessment. We have kept a two-months cushion for this funding. Once the new investors form their minds, then there will not be much of an issue. The restructuring of the equity and debt is in such a manner that the facility which is being proposed is fully secured. It will likely be a 10-year instrument, the details of which will be given. It will not be a listed debt instrument. It will be an unlisted debt instrument. But the risk-reward metrics is not against the lenders.

Why does the lenders committee intend to manage an airline until such time that a suitor comes on board? It is a complex operation. How does a team of lenders expect that they will run such a complex operation?

As far as the management is concerned, we are proposing that let there be a formal management committee which will be headed by one of the independent directors appointed by the board. Help will be given to that management. We have McKinsey already working on Jet Airways’ turnaround plan. There is already a turnaround plan. Jet airways will be appointing a very reputed firm to monitor the whole restructuring exercise. These kinds of comments that “lenders are not aviation experts” is something we know. If we run our bank well then that itself is good for us. I have no intention to run the aviation sector, or any other sector for that matter. But it was necessary that whatever happened today and whatever will happen in the next two months, the intent is very clear that whoever takes the risk will get the proper reward. If great airlines like Jet Airways is not allowed—mark my words—to dive under the NCLT process which will lead to liquidation. It is a chance which everyone is taking. At least, I am confident that Jet can be revived successfully.

How much will the consortium end up holding in terms of equity? Will any individual bank be in breach of the RBI’s rule of how much equity in a company one is allowed to hold? Will you have to seek any special permission?

No.

The Rs 1500 crore will be adequate capital for working capital and is being provided for how much time?

Our assessment is two months and by that time we intend to complete the sale process.

But there are no obvious buyers on table right now.

How do you know that?

Can you tell me people who you are in talks with?

I cannot.

Who are the potential investors?

That you have to find out from your sources.

So, are you giving us guarantee that in two months banks will be out of this mess?

Banker’s guarantee has a lot of value. I am not giving any guarantee that everything will be positive. I am giving you my assessment of the situation that there is a good possibility that a lot of investors’ interest will come in. Jet Airways has a good brand and they have fantastic slots. It is a fantastic airline in terms of service quality. India needs an airline like Jet Airways. Lenders will make every effort so that it keeps flying.

Is Etihad still on table? Or have they decided that they don’t have to participate in terms of the revival plan?

It is their choice. Even for Naresh Goyal, it is his choice and his capability to bring in funds. Doors are open for everyone because the existing promoters are eligible to re-bid under the relevant laws. Eligibility under 29A in the IBC does not apply to them. They are eligible. Etihad is free to take their call and any outsider investor is free to take their call. I feel that there will be a competition to acquire Jet Airways.

We have seen this story playing out before, whether in Kingfisher or Reliance Communication where banks went in and said they will not take the company to insolvency and will resolve it. And in the end, the banks are left holding the ball. Why are bankers saying that this is a great airline and needs to be saved? Bankers should only make sure that the depositors’ money is coming bank. If IBC is the best route, then why the reluctance?

It is wrong understanding. It is not that we are putting depositors’ money at risk. You did not mark my words. The risk-reward metric is not against the lenders in this case. Ask your analyst team to do some homework and look at the numbers and they will see that it is not against banks or taxpayers. We are paying just Re 1 of taxpayer’s money for 50.1 percent stake in Jet and that too only for a transitory period of two months. If there is a patient who is sick and sometimes if there is no hope, then should one not try?

Will it be an NPA at the end of March and you will start increasing provisions on it? The 90-day period ends in March.

It will not be 90 days overdue. Whatever prudential provision, if required to be made, or any mark to market provisions have to be made, then we will make it.

But if it qualifies as a restructuring plan under RBI’s Feb. 12 circular, don’t you have to mark it down as an NPA in any case?

If we have to qualify it as an NPA then we will do so and if we don’t have to do then we will not do.

Is two months a firm deadline within which you want a new buyer? If not, then what is recourse?

Yes. That, we will see. Why speculate today?

Because it could be nice to get visibility from banks as to how they intend to take this forward. They just extend and pretend to use ‘if’ to use a phrase of former RBI deputy governor.

That is your assessment of situation and you live with it. Our assessment of situation is that it can be revived.

How much role does the government play in the restructuring process right now? There was some talk that there will be some conversation with SpiceJet to take over some planes to ensure customers are not hurt.

There is no such conversation. Airlines are governed under the aircraft rules and Ministry of Civil Aviation guidelines. To that extent, any resolution plan cannot happen without the approval of the Ministry of Civil Aviation under relevant rules. The government’s rule is to clear and approve the transaction when it happens under the relevant rules.

Have all lenders approved this plan? Is it a 100 percent CoC approval?

They will follow the process.