Events since January show banks were not keen to drag Jet to bankruptcy

Gyrations in its share prices last week show that the airline had erased investor wealth with the passive support of the banks

Nothing else captured as well how Jet Airways had erased investor wealth with the passive support of the banks, as the gyrations in its share prices last week. It also could show that some of the blame for the loss rests with New Delhi, as government-run State Bank of India, leading the consortium of lenders, delayed sending India’s premier aviation company to the insolvency courts.

Surprising most analysts, Jet Airways' shares rose by 150 per cent on Thursday when the bankruptcy court admitted the case moved by the largest lender to the airline, State Bank of India. By the end of the next day, the shares inflicted a 22.65 per cent loss on the holders at close. Tracing a dervish dance on the charts, the shares dipped to Rs 37.75 at one stage, before recovering to close at Rs 64. It was a repeat of the pattern for Thursday. Friday’s closing price, as Business Standard reported, means the stock has surged 210 per cent from its all-time low of Rs 26.55 intra-day recorded on Thursday.

The Jet stock had apparently rallied on the news of its admission in the National Company Law Tribunal. It is a surprise, though, why the stock holders should do a dervish dance on this news. Major NCLT cases take more than the permitted 270 days to work through the system and would give very little upside to the equity holders eventually. Even the lenders can expect to recover little of the Rs 8,500 crore the company owes them.

Markets may have reacted to an unverified report circulating on WhatsApp, of a meeting with the bank chairman of one of the banks with two industrialists in Mumbai and central government officers to bail out the company. However, no confirmation or denial of the meeting was forthcoming from any source. It is also possible that the message was itself an effort by those holding the stock to exit with profits, since Thursday was the last day for expiry of the futures and options for the stock, so those with short positions (i.e. betting on a rise) had to exit. The shares of the company will now be delisted from daily trading on the National Stock Exchange on June 28. Airline stocks in India do this at times. Kingfisher Airlines, which was allowed trading on just one day of the week -- Monday -- used to behave similarly long after Mallya had fled. 

Yet, if some investors had bought into the story, they cannot be blamed as events since January showed the banks were not keen to drag India’s premier airline to face bankruptcy. And that could only mean the state was not keen too, even though on record former minister of state for aviation, Jayant Sinha said in April: “They (banks) are responsible to their stakeholders, to their depositors and they should do what they think is commercially the right thing to do. That is exactly what they are doing as far as Jet Airways is concerned. And we have to let them do that because that is how we create accountability in the system, that is how we reduce the price of risk in the system.” But, as a Business Standard edit noted; “For inexplicable reasons, Mr Goyal was given an inordinately long rope by the lenders, which worked to the detriment of everyone else”.

Yet Jet was in trouble long before. Rating agency Icra had downgraded Jet Airways’ long-term borrowing programme in October last year. Audit firm BSR & Co, affiliate of KPMG, refused to sign on the first quarter results of the company even earlier, in August. Even before it defaulted on its debt, the airline was looking down the barrel of a gun. In January this year it issued a statement saying the payment of interest and principal instalment was delayed “due to temporary cash flow mismatch”, an euphemism for going broke. By November, the full service airline set up in 1995 had cancelled rafts of flights including terminating services on seven Gulf routes that are the most profitable for any India based airline. 

Despite the developments, in the last week of February, the banks were reported to have planned to offer a fresh loan of Rs 1,500 crore to Jet. Only when this too did not materialise, did the promoter of the airline Naresh Goyal finally step down from management control, on March 25. But the saga was still not over as the bankers, led by SBI chairman Rajnish Kumar. met the finance ministry more than once before taking a call, and as the stock lost value. PNB managing director and CEO Sunil Mehta confirmed the meeting with secretary, department of financial services in the ministry. “While a discussion on Jet Airways’ revival is going on, no plan has been finalised,” he told Mint

Kumar, the SBI chief, said he was sure there would be a buyer for Jet soon. But when the lenders called for expressions of interest in the airline, it turned bizarre. They found Goyal had also put forward his interest. Just days earlier, he had not been able to raise money to keep Jet airborne. None of the others, including Etihad Airways, TPG Capital, Indigo Partners and NIIF who joined the fray initially, stayed the course. The Etihad bid  was possibly more political, as a Mint report pointed out, to save its bilateral flying rights within India. But even then the lenders hung around for another month, till two of the operational creditors pulled the plug by threatening to move the NCLT. 

Clearly, the stock has become a punters’ favourite from a position as a respectable member of the BSE 100, just a year ago. The lenders have to take a lot of responsibility for it. As Sanjay Sinha, Founder of Citrus Advisors put it, “Investor wealth would have been preserved better if the company had been moved into the NCLT theatre as an operating airline.” In the last eighteen months, Jet Airways has cleaned out close to Rs 9,500 crore of investors' wealth. As on June 21 its market cap was Rs 823 crore, a total rout.

He said when Etihad had made a non-binding bid for Jet on May 11, it was premised on a share price of about Rs 150, but as the market price was higher then, the bankers stonewalled it since they could be accused of taking sides. He did not say so, but a dead-upon-arrival case like Jet at NCLT runs no risk of partisanship in the world of Indian finance.