Banks may hold 20% in Jet Airways to make Etihad-Hinduja deal fly

Industry:    May, 2019

Banks might agree to acquire up to a 20 per cent stake in Jet Airways as the Hinduja group is not keen to exceed its shareholding beyond 30 per cent in the grounded airline, sources close to the development said a day ahead of a crucial meeting at the Etihad headquarters in Abu Dhabi.

According to the plan discussed by the lenders’ consortium, led by State Bank of India (SBI), banks will hold the stake for up to two years. Subsequently, they can sell it and cash out.

“The Hindujas are unwilling to invest a bulk amount. In that scenario, banks will propose to hold the remaining 20 per cent stake for a certain period with terms and conditions, which will allow them to cash out after two years,” said a person in the know. Around 26 per cent of ousted Jet chairman Naresh Goyal’s stake is already pledged with Punjab National Bank, which has the second highest exposure to the airline after SBI.

The Hinduja group is set to meet top Etihad executives on Thursday in Abu Dhabi to discuss the deal. Top executives of SBI will also be present at the meeting to be held at the Etihad headquarters.

While the interest from Hinduja is a positive sign for the grounded airline, executives of banks cautioned that there is no certainty that the deal will fructify. “The situation looks to be extremely difficult. The cost of recapitalising Jet Airways is increasing every day.

Despite grounding operations, the airline has an expenditure of at least Rs 120-130 crore per month while it is not earning anything. While NCLT is not a favoured route, there will be no other option left,” the bank executive said. He mentioned that simultaneous discussions are underway with government-owned wealth fund National Investment and Infrastructure Fund (NIIF). Jet Airways has a liability of around Rs 15,000 crore, including bank debt of over Rs 8,500 crore. As part of the resolution process, lenders had invited bids to buy up to 76 per cent in Jet Airways.

Etihad Airways submitted a conditional bid for a minority stake, forcing the lenders to look for a majority partner. Etihad, in its conditions, asked for a write off of 80 per cent of the bank debt. As part of the process, SBI Caps, the investment banking subsidiary of SBI, has reached out to various Indian conglomerates and NIIF. It has also started a discussion with unsolicited bidders like London-based Adi Partners and Darwin Platform Group, which has investments across various sectors including oil and gas, hospitality and realty.

But sources said that neither the lenders nor Etihad is comfortable with these entities holding stake in Jet as they have no proven credentials in running a big business.

Sources pegged the total investment required by Jet Airways to restart operations at Rs 5,950 crore. Etihad, in its offer, said it would be able to invest only Rs 1,700 crore and acquire only 24 per cent stake.

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