Etihad says it can only invest Rs 1,700 crore in Jet Airways

Industry:    May, 2019

Etihad Airways has said it can only invest up to Rs 1,700 crore in Jet AirwaysNSE -4.84 %, a fraction of what the grounded airline needs for survival. The Abu Dhabi carrier is also noncommittal on Jet’s dues and has demanded a one-time settlement in a highly conditional bid it submitted on Friday.

The conditions leave little scope for Jet Airways, its employees and investors to pin their hopes on the Gulf carrier as its saviour. It also means the grounded airline’s lenders have to scramble for a new majority investor if they want Jet to fly again.

“Etihad did not put in a binding bid. In a way, the bidding process didn’t take off the way it should have,” a person familiar with the development told ET.

“We are serious but not at any cost,” said an Etihad spokesperson. “The conditions are key to our participation.”

“As a minority shareholder, Etihad can only bring in cash required to retain its stake of 24%. The rest is up to the people managing the process,” said a person with knowledge of the matter.

“As a minority shareholder, it is not for Etihad to take on the debt and liabilities. Etihad is only interested in the company being run well by professional management with proper governance and the right professional board,” said the person.

Etihad was the only entity to put in a bid on Friday, minutes before the deadline for submissions ended. Of the four expressions of interest (EoIs) from investors that had been selected, apart from Etihad, the other three had been from National Investment and Infrastructure Fund (NIIF), TPG Capital and Indigo Partners. Jet needs at least Rs 15,000 crore to revive.

Jet is being probed by the Enforcement Directorate, the finance ministry’s economic law enforcement agency, on its deal to sell 50.1% of its loyalty rewards programme Jet Privilege Pvt Ltd (JPPL) to Etihad. The Serious Fraud Investigation Office (SFIO) of the corporate affairs ministry is looking into alleged irregular transactions by Jet’s founder Naresh Goyal.

An official with one of the creditors said the probes, if converted into full-fledged investigations, may delay, even derail, any one-time settlement of debt. Jet has a total Rs 8,500 crore of debt on its books. Etihad had demanded last month that the banks take a haircut of over 70% on their loans. In the bid document, it has given indications about a debt recast without clearly spelling out the extent of haircut it wants banks to take.

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One of its key conditions has been that it won’t raise its stake above 24%. Etihad isn’t ready to implement an open offer that, according to Indian capital market norms, is triggered as soon as the shareholding of an entity in a company crosses 25%. Goyal owns 51% of Jet and has pledged just over 31% of his stake. The public owns 25%.

A senior Etihad executive said it had helped Jet cope with financial challenges several times in the past.

“Over the past five years Etihad has invested significantly and on multiple occasions in Jet Airways, enabling the airline to overcome prior liquidity crises. But as a minority shareholder Etihad has not been responsible for the business strategy,” said the person. Etihad purchased its 24% stake in Jet in 2013 for $379 million. It bought half of JPPL for $150 million and guaranteed additional soft loans that Jet raised from overseas lenders. “Etihad has over the past two years proposed multiple solutions to recapitalise the airline, but no action has been taken.”

Jet’s resolution plan, implemented by its bankers, entailed a debt-to-equity conversion, through which 114 million shares would be issued to banks. There would be a subsequent rights issue to new investors. The initially proposed conversion at Rs 1 is now stalled because of a recent Supreme Court order that quashed the Reserve Bank of India’s rules for debt restructuring that were announced on February 12, 2018.

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