New plan for Jet's recast on anvil; Naresh Goyal's stake may go below 20%

Etihad Airways, which holds 24% in Jet at present, may up its stake to close to 40% in the airline; EGM scheduled for February 21

Within weeks of proposing a formula for restructuring the ailing private carrier Jet Airways, lenders — led by State Bank of India — are now working on a revised plan. The new plan, which could possibly see Jet Founder Chairman Naresh Goyal’s stake go down below 20 per cent from the current 51 per cent, is likely to be finalised in the next two weeks, according to sources close to the development. The earlier proposal had suggested diluting Goyal’s stake to around 25 per cent.
 
The entire process along with board approvals will have to be completed ahead of an extraordinary general meeting (EGM) scheduled to be held on February 21 for shareholder resolutions. Jet, which has a loan of over Rs 8,000 crore, has run out of funds and needs to be restructured immediately so that it’s not dragged to the National Company Law Tribunal (NCLT) for insolvency proceedings, one of the sources said. The Securities & Exchange Board of India (Sebi) would soon decide on the exemptions sought by Etihad linked to open offer and the valuation of the company stock.
 
Etihad Airways, which holds 24 per cent in Jet at present, may up its stake to close to 40 per cent in the airline in accordance with the revised road map. Its stake could go even higher to around 44 per cent in the case of an open offer, the source quoted earlier said.
 
Goyal’s holding could be around 16 to 18 per cent, while lenders (mainly SBI), which are planning to convert their debt into equity as well as make fresh infusion, were likely to have about 30 per cent in Jet. The remaining shares would be with the public.
 
Although Goyal is fighting to keep a hold on the company he founded 25 years ago, he may have to let go, people tracking the matter pointed out. Goyal and Etihad Airways CEO Tony Douglas recently had a face-off on who would control Jet through their letters to SBI Chairman Rajnish Kumar. On Friday, Reuters reported that Etihad has appointed turnaround specialist Alvarez & Marsal to conduct due diligence on Jet. Jet Airways did not respond to an email query.
 
Lenders and Etihad have discussed share allotment through either preferential allotment or rights issue. The Gulf carrier had asked the SBI to help secure waivers from open offer and share pricing norms while laying down stiff conditions on investment. One specific condition was about securing an undertaking from Goyal to comply with the terms of resolution plan in a legally binding form. Goyal has asked for a promoter status and 25 per cent shareholding while agreeing to infuse Rs 700 crore in the airline. It is learnt that the government does not want Jet to go down, especially when elections are just a few months away, and is watching the developments in the space closely.
 
According to the restructuring plan being considered by the stakeholders, lenders would hold a stake in Jet for about two to three years. Subsequently, the lenders’ stake would go to other investor(s) which are roped in later, or the current shareholders’ could increase their holdings in the airline.
 
The Jet restructuring would mean a recast of the board of directors as well. While three board seats are likely to go to Etihad as it may turn out to be the largest shareholder, Goyal’s family would have just one board seat. His son Nivaan Goyal would be inducted in the board as the father would need to step down, according to the plan.

 
The lenders, which are likely to have a considerable shareholding at a total of around 30 per cent, would get two board seats. In addition, there will be three independent directors, one of who will be the chairman as Goyal leaves. The thinking is that Jet would be a board-run company and would have a new CEO and CFO, among other top executives. Etihad had proposed a nine member board and said it was willing to consider Goyal or lenders having two nominees on the board. “The firm will be professionally managed and board run and Etihad would not control the board or management,” it had said in a proposal last week.

In the past few months, Jet has had negotiations with several corporate groups to induct them as investors as Goyal’s relationship with foreign partner Etihad hasn’t been easy. However, none of the deal talks worked out. Salt to software conglomerate Tatas and private equity player TPG were both engaged in talks for a possible partnership with Jet, but they had demanded even more stringent conditions than Etihad for a deal, another source told Business Standard. Jet had even approached Reliance Industries for a venture but that too didn’t take off. 

Following the recent default, Jet’s lenders would have to initiate resolution process within 180 days, according to the Reserve Bank norms. Earlier this month, Jet informed the stock exchange that payment of interest and principal amount due to the consortium of banks on December 31 was delayed due to temporary cash flow mismatch. It said the company had engaged with banks on the same. The default prompted Icra to downgrade Jet’s rating to ‘D’. This was the seventh rating downgrade for Jet since March 2017. Loan instruments, which are in default or those expected to touch that mark soon, are assigned 'D' rating, according to the rating