Jet may seek debt recast if it fails to get equity infusion and sell assets

Jet Airways, which has an annual interest outgo of Rs 9 billion, will have to go for a debt recast with its lenders if it does not get equity infusion in the near future and fails to sell assets. The company had a consolidated debt of Rs 84 billion at the end of March 2018 and has Rs 20 billion of debt repayment scheduled by March next year, say analysts. 

“The banks are worried that if the Tatas delay their decision, then Jet will have to do a fire sale of its assets or seek a debt recast,” said a source close to the development. But any debt recast faces multiple hurdles. 

First, the debt recast plan will require 100 per cent voting by Jet’s bankers as the Reserve Bank of India’s (RBI’s) February 12 circular has made it mandatory for 100 per cent voting of all lenders for any debt restructuring. 

Second, the recast plan will also require vetting by two credit rating agencies and the plan will need personal guarantees of the promoters. 

Besides, the airline will also have to undergo a forensic audit for any debt recast to be cleared. Since February 12, virtually all loan recast has come to a halt. 

“It could be a close call between getting a debt recast package and getting referred to the National Company Law Tribunal (NCLT) for debt resolution under the Insolvency and Bankruptcy Code,” said a banker. 

The airline has not defaulted on any debt repayment as yet but has not paid dues to the Airports Authority of India (AAI). 

A senior executive with a Mumbai-based lender said haircut for lenders would be a key element for Jet Airways’ survival. But it can’t be a standalone package by banks and has to be part of an overall restructuring package which covers specific terms and conditions, including obligations of owners, he said.

Asked if a package could be hammered out under the NCLT, the banker said it was too early for a decision.

Analysts said the airline was hit by rising fuel oil prices and a weakening rupee. To make matters worse, 60 per cent of its Rs 84-billion debt is dollar denominated. “We believe Jet requires a minimum of Rs 50 billion, including scheduled debt repayment, in a couple of quarters to run the airline, but can arrange maximum of Rs 36 billion with aircraft sale and leaseback/loyalty programme stake sale. So, an equity infusion is required to run the business,” said Jal Irani, analyst with Edelweiss Securities.

Jet has said it may raise funds by selling stake in its loyalty programme or from selling six aircraft. The loyalty programme is likely to receive a better valuation, compared to its sale of 50.1 per cent stake to Etihad in 2013, as the number of members increased three times to 8.5 million. “If we consider valuation of $750 million (which is 2.5 times the earlier valuation in 2013), Jet will receive Rs 27 billion at current exchange rates,” said Irani. 

At the same time, analysts said the six aircraft assets on sale were valued at Rs 17 billion by the airline, but with Boeing introducing new aircraft Boeing 777X, the demand for older Boeing 777 stands reduced. Thus, the airline can receive around Rs 8.6 billion, as its aircraft are nine years older, say analysts.
 

“Any default on debt would lead to lenders dragging the company to the NCLT, resulting in a potential shutdown of operations,” Irani warned.

With inputs form Abhijit Lele