Debt-laden Jet Airways accepts Etihad bailout plan, may sign MoU soon

The final agreement is expected to push up Etihad Airways' stake to around 40 per cent from the current 24 per cent

Naresh Goyal-controlled Jet Airways has agreed with most of the conditions set by its partner Etihad for offering a lifeline to the debt-laden domestic carrier. According to sources, the airlines are set to sign a memorandum of understanding (MoU) within days.

According to the proposed deal, Founder Chairman Goyal will step down from the board of directors and relinquish his decision-making powers. His stake in the company would come down to around 22 per cent from 51 per cent now. Goyal’s son Nivaan Goyal will get a board seat.

The final agreement is expected to push up Etihad’s stake to 40 per cent from 24 per cent. The legal formalities around the deal and the way ahead will be decided at the Jet board meeting on February 14, to be followed by an extraordinary general meeting scheduled for February 21. A consortium of lenders, including the SBI, would convert their debt into equity and are likely to hold about 30 per cent in Jet. The remaining would be with the public. Jet also agreed with the Gulf carrier’s condition of investing in the domestic airline at Rs 150 per share, much lower than Jet’s current market price of Rs 265.  Also, Etihad is unlikely to pledge its holding in Jet or issue any corporate guarantee for any loan restructuring package. However, any exemption to an open offer, which is among the riders, is subject to regulatory approvals, said a source quoted above.

Etihad is willing to immediately release $35 million if its conditions are met. While some believe the riders are unrealistic, the airline’s bailout has become a national issue with more than 20,000 jobs at stake. 

It’s not unusual for Sebi to provide relaxation in relation to preferential issue pricing and open offer norms during government infusion in state-owned firms, particularly banks. As per Sebi’s takeover code, change in control at a listed firm triggers an open offer to purchase additional 26 per cent stake. Similarly, capital infusion in a listed company has to be done under Sebi’s pricing formula.