Jet Airways misses resolution date, may fly towards NCLT

Bank-led resolution for the full-service  domestic airline Jet Airways will be the first casualty of the Supreme Court’s sweeping order quashing the Reserve Bank of India (RBI) circular of February 12. 

The signing of the agreement to convert debt into 11.4 crore shares at Re 1 was scheduled on Wednesday (April 3, 2019). But now with the court cancelling the circular, bankers are unable to convert the debt into equity or take over the shares of Naresh Goyal at Re 1. 

Bankers are waiting for some clarity on the plan from both the government and RBI.

Lenders were getting statutory and regulatory permissions when the SC order came on Tuesday and overturned their plans. Now the airline may head to NCLT, where it will be auctioned off or Etihad would need to come up with an offer.

“The situation is very fluid now. Now the only hope seems to be Etihad buying out Goyal’s shares. Heading for NCLT will only delay the process and ground the airlines,” said a banker

“We have not signed the agreement. The signing was scheduled for today, but now we cannot go ahead as the Supreme court can question us. We would be violating the Supreme court order. With the RBI circular cancelled, we will be unable to convert the debt into equity, so the majority shareholding in the airline continues to  rest with Naresh Goyal,” said another banker, who is part of the lenders’ consortium.

“In the absence of the RBI circular the pricing of the share will  now have to follow the Securities and Exchange Board of India (Sebi) pricing formula, based on the six month average price, which will turn out to be very expensive for banks,” the banker said. 

The Jet Airways Board had last month approved the conversion of debt into equity at a discounted rate of Re 1.With this, the lenders’ forum led by State Bank of India (SBI) will be majority shareholders in the airline, the Board had said in a notification to the  Exchanges on March 25.

As a pre-condition to implement this resolution plan, Jet founder and chairman Naresh Goyal and his wife Anita Goyal resigned from the Board. Another director Kevin Knight nominated by Etihad also resigned. The Board had accepted their resignations. The bankers had also agreed to pump in Rs 1,500 crore through a bond issuance.” Some part of this money has already gone into the airline, the remaining would have gone had we signed the agreement.”

“With the SC striking down the RBI circular, the resolution process will not hold, and the banks will have to rework the deal,” said another banker.

Lenders had laid the ground for a new owner in Jet Airways after they had insisted on an undertaking from the shareholders that will trim founder-chairman Naresh Goyal’s stake to below 10%, while Abu Dhabi-based Etihad will have to agree to exit from the ailing airline. The lenders consortium was planning to call for open bids to sell Jet Airways after obtaining written agreements from Goyal and Etihad. Goyal, who currently owns 51% of Jet Airways, will not have voting rights. Etihad, whose holding is at 24%, according to the plan, has to agree to sell its entire stake if it does not bring in new capital. 

In the first stage, Goyal will own 25.5% of Jet Airways, down from 51%, after conversion of debt into equity at Re 1 a unit. Etihad’s stake will fall from 24% to 12%, while the banks will hold 50% of Jet Airways. Banks have set a deadline of June 30 to offload the stake.

FLIGHT TO NOWHERE

• 11.4 cr – Shares debt of banks was to be converted into
   
• Rs 1,500 cr – Bankers had agreed to pump in Jet through a bond issuance
   
• sub-10% – Goyal’s stake in Jet was slated to be brought down to