Financial creditors to take 95% haircut on Rs 7,800 cr Jet Airways dues

Jalan-Kalrock to pay only Rs 385 crore; NCLT asks govt to make slots available for new owners in order to successfully revive the airline

Financial creditors to Jet Airways will be taking around 95 per cent haircut as the successful bidder Jalan-Kalrock consortium have proposed to pay Rs 385 crore against the total claim of Rs 7,807.74 crore.

Out of that Rs 185 crore will be paid upfront within 180 days after start of operations of the company, whereas Rs 195 crore will be paid through issuance of zero coupon bonds, each of Rs 1,000 face value after two years.

The consortium has offer Rs 391 crores in the form of non-convertible debentures (NCDs). It has also offered 9.5 percent stake to the lenders in Jet Airways and 7.5 per cent in loyalty program Jet Privilege Private Limited (JPPL).

The Jet Airways case follows the trend of steep haircut that lenders are taking in case of companies that are being taken to bankruptcy court.

According to data from Insolvency and Bankruptcy Board of India (IBBI), in over 363 major NCLT resolutions since 2017, banks have taken an average haircut of 80 per cent over the past four years. Some of the large haircuts include Deccan Chronicle (95 per cent), Lanco Infra (88 per cent), Ushdev International (94 per cent) and Zion Steel (99 per cent).

“Service sector companies like airlines which operate on an asset light model with leased aircraft have virtually no assets. In case of liquidation, the resultant recovered value would have been far less and the company would not have revived,” said an executive of a bank involved in the process.

While the airline had shut operations in April 2019, last October, the revival plan presented by and Murari Lal Jalan, a Dubai-based businessman and Florian Fritsch-headed Kalrock Capital Management Ltd, a London-based financial advisory was approved by over 98 percent votes by the lenders consortium It was approved on June 22 by the NCLT.

Various classes of creditors have collectively made claims of Rs 40,259.12 crore against Jet Airways in NCLT.

Of these, the resolution professional has admitted total claims amounting to Rs 22,167.23 crore including Rs 7,807 crore from financial creditors, including domestic and foreign banks, other financial institutions, corporate guarantors and lessors.

According to the claims, domestic lenders owe Rs 5,776.71 crore to the airline. State Bank of India has the largest exposure with claims of Rs 1,636.22 crore, followed by YES Bank with Rs 1,084.44 crore, Punjab National Bank Rs 754.11 crore, IDBI Bank Rs 594.42 crore, Canara Bank Rs 543.61 crore, ICICI Bank Rs 519.08 crore, Bank of India Rs 263.57 crore, Indian Overseas Bank Rs 158.24 crore, Syndicate Bank Rs 169.73 crore, PNB Hong Kong Rs 42.98 crore, ICICI Bank ECB Loan Rs 9.86 crore, and Axis Bank Rs 41 lakh.

Several foreign lenders and financial institution like UAE based Mashreq bank, France’s Natixis SA owe Rs 563 crore according to the list of creditor approved by the resolution applicant.

Operational creditors of the company virtually get nothing as the resolution plan approved by NCLT says that a creditor will get maximum of Rs 15,000 each irrespective of the claim amount.

The consortium has proposed to infuse Rs 1,375 crore over next two years into the company which will be used to pay expenses of restarting the company and settling creditor dues. While Rs 475 crore will be used to pay creditors, around Rs 975 crore will be used for capital expenditure and working capital expense.

In an earlier interview with Business Standard, UAE-based entrepreneur Murari Lal Jalan had said that the consortium will assure requisite funding to restart operations. “Let me reassure that there will be no dearth of funding for Jet Airways,” he had said.

The consortium plans to start operations with 30 aircraft including five wide body aircraft for international operations.

However, the NCLT has not agreed to retain historic slots of erstwhile Jet Airways to new owners- one of the key demands by the consortium. It has asked the government to cooperate with new owners to make slots available in order to successfully revive the airline.

“Keeping in view the purpose of Insolvency Resolution we trust that the authorities concerned including the Government shall take a holistic approach and provide necessary assistance for allocation of slots as and when they are sought, so that the Airlines takes off the ground and possibly regain its lost glory,” the order said.

When it shut operations, Jet Airways had close to 700 slots including 116 and 214 in prime airports of Delhi and Mumbai.