 "Bidding for Jet Airways delayed, banks await RBI nod on debt conversion")
A lack of clarity on the impact of the Supreme Court order quashing the Reserve Bank of India’s (RBI’s) February 12, 2018, circular has delayed the stake sale process of cash-starved Jet Airways. Sources aware of the development said banks were still awaiting approval from the RBI on the legality of debt-equity conversion at Rs 1. As a result, the process of bidding, which was scheduled to start on Saturday, could not take off.
“All legal approvals from the RBI need to be in place including examination of the issue of debt to equity conversion. Unless legal work is done, the bid document cannot be issued,” said an executive of a bank which is part of the consortium. Earlier this week, lenders’ consortium had announced that expressions of interest (EoIs) from bidders would be invited on April 6. They had set April 9 as the deadline for receiving bids giving investors four days to respond.
Now, the deadline for submission of bids will also be extended as the process has been delayed. “Whenever the EoI is published, four days will be given to interested parties to respond,” the official said. The bid document could be issued as early as Sunday if the legal processes are completed by then. In that case, April 10 would be the deadline for submission of bids, the official pointed out.
On February 14, the Jet Airways board had agreed to a plan wherein a consortium of lenders led by State Bank of India would take over the airline’s debt and convert it into 114 million shares for just Rs 1, giving them a 50.1 percent stake in the company.
A delay in the resolution process will further worsen the financial condition of the airline which is left with a fifth of its original fleet. Its creditors including aircraft lessors are threatening to de-register more planes and oil marketing companies have started suspending fuel supplies to the airline. On Friday, Indian Oil Corporation had stopped supply of fuel to the airline for more than two hours due to non-payment of dues.
The February 12 circular allowed banks to be allotted shares at Rs 1 for companies which have a negative book value.
Another banker who is overseeing the resolution process of Jet Airways said the lenders may have to wait for the RBI to issue a revised circular on resolution of stressed assets. “We have asked the RBI to give its opinion as soon as possible. We have highlighted that Jet Airways is a special case and any delay would harm the process. We expect to hear soon from them.” he said.
Experts pointed out that bankers need to exercise adequate caution so as to avoid legal conflict in future. “Resolution plan that involves debt to equity conversion of listed companies like Jet Airways could witness a high risk of litigation. As the RBI circular stands struck down, resolution plan that involved equity conversion could be subject to extended litigation by existing sponsors as well as shareholders,” brokerage firm SBI Caps noted in a report.
With the delay, the airline now faces the prospect of a shutdown anytime. There’s no consensus yet among the bankers on infusing Rs 1,500 crore of emergency funding into the company as they wanted clarity on new investors. A positive response to the EoI is important as that would allow the lenders to infuse emergency funding of Rs 1,500 into the company. The process of stake sale was extended as members of the lenders’ consortium wanted commitment from a new investor for further funds to be released.
While oil marketing companies resumed supply of fuel to the airline on Friday after government intervention, catering companies have now threatened to stop supply of in-flight meals if assurance of payment is not made. The airline has already stopped in-flight entertainment system in its long haul flights due to non-payment to suppliers. “Without funding, the airline will have to shut operations by April 12,” a Jet Airways executive said.
Worsening crisis
(Inputs from Abhijit Lele in Mumbai)
“All legal approvals from the RBI need to be in place including examination of the issue of debt to equity conversion. Unless legal work is done, the bid document cannot be issued,” said an executive of a bank which is part of the consortium. Earlier this week, lenders’ consortium had announced that expressions of interest (EoIs) from bidders would be invited on April 6. They had set April 9 as the deadline for receiving bids giving investors four days to respond.
Now, the deadline for submission of bids will also be extended as the process has been delayed. “Whenever the EoI is published, four days will be given to interested parties to respond,” the official said. The bid document could be issued as early as Sunday if the legal processes are completed by then. In that case, April 10 would be the deadline for submission of bids, the official pointed out.
On February 14, the Jet Airways board had agreed to a plan wherein a consortium of lenders led by State Bank of India would take over the airline’s debt and convert it into 114 million shares for just Rs 1, giving them a 50.1 percent stake in the company.
A delay in the resolution process will further worsen the financial condition of the airline which is left with a fifth of its original fleet. Its creditors including aircraft lessors are threatening to de-register more planes and oil marketing companies have started suspending fuel supplies to the airline. On Friday, Indian Oil Corporation had stopped supply of fuel to the airline for more than two hours due to non-payment of dues.
The February 12 circular allowed banks to be allotted shares at Rs 1 for companies which have a negative book value.
Another banker who is overseeing the resolution process of Jet Airways said the lenders may have to wait for the RBI to issue a revised circular on resolution of stressed assets. “We have asked the RBI to give its opinion as soon as possible. We have highlighted that Jet Airways is a special case and any delay would harm the process. We expect to hear soon from them.” he said.
Experts pointed out that bankers need to exercise adequate caution so as to avoid legal conflict in future. “Resolution plan that involves debt to equity conversion of listed companies like Jet Airways could witness a high risk of litigation. As the RBI circular stands struck down, resolution plan that involved equity conversion could be subject to extended litigation by existing sponsors as well as shareholders,” brokerage firm SBI Caps noted in a report.
With the delay, the airline now faces the prospect of a shutdown anytime. There’s no consensus yet among the bankers on infusing Rs 1,500 crore of emergency funding into the company as they wanted clarity on new investors. A positive response to the EoI is important as that would allow the lenders to infuse emergency funding of Rs 1,500 into the company. The process of stake sale was extended as members of the lenders’ consortium wanted commitment from a new investor for further funds to be released.
While oil marketing companies resumed supply of fuel to the airline on Friday after government intervention, catering companies have now threatened to stop supply of in-flight meals if assurance of payment is not made. The airline has already stopped in-flight entertainment system in its long haul flights due to non-payment to suppliers. “Without funding, the airline will have to shut operations by April 12,” a Jet Airways executive said.
Worsening crisis
- Rs 8,500 cr Jet owes to lenders; in addition, the airline has unpaid dues to lessors and employees
- Rs 1,500 cr Emergency funding required
- Rs 150 cr Lenders’ consortium led by SBI will infuse for now
- 90 Number of aircraft grounded due to non-payment to lessors
(Inputs from Abhijit Lele in Mumbai)
One subscription. Two world-class reads.
Already subscribed? Log in
Subscribe to read the full story →*Subscribe to Business Standard digital and get complimentary access to The New York Times
Smart Quarterly
₹900
3 Months
₹300/Month
SAVE 25%
Smart Essential
₹2,700
1 Year
₹225/Month
SAVE 46%
*Complimentary New York Times access for the 2nd year will be given after 12 months
Super Saver
₹3,900
2 Years
₹162/Month
Subscribe
Renews automatically, cancel anytime
Here’s what’s included in our digital subscription plans
Exclusive premium stories online
Over 30 premium stories daily, handpicked by our editors
Complimentary Access to The New York Times
News, Games, Cooking, Audio, Wirecutter & The Athletic
Business Standard Epaper
Digital replica of our daily newspaper — with options to read, save, and share
Curated Newsletters
Insights on markets, finance, politics, tech, and more delivered to your inbox
Market Analysis & Investment Insights
In-depth market analysis & insights with access to The Smart Investor
Archives
Repository of articles and publications dating back to 1997
Ad-free Reading
Uninterrupted reading experience with no advertisements
Seamless Access Across All Devices
Access Business Standard across devices — mobile, tablet, or PC, via web or app
SAVE 25%