18% rise! Is it Naresh Goyal's resignation impact on Jet Airways stock?

Jet Airways Chairman Naresh Goyal Resigns: The announcement has been made and the fate of Jet Airways have been set by a consortium of lenders led by State Bank of India. This fate of Jet Airways is sad goodbye from its chief Naresh Goyal who formed this private carrier way back in 1933. It’s a 26-year-old business end for Jet Airways and Naresh Goyal. Interestingly, Goyal’s wife Anita and also Etihad Airway’s one promoter are among the people to step down from Jet Airways. Meanwhile, Jet Airways debt resolution plan for debt conversion into equity is a green go ahead. In this announcement, there were investors who were very happy, because they heavily bought Jet Airways shares. The airline finished at Rs 254.50 per piece up by Rs 28.65 or 12.69% on Sensex. However, the overall growth on Monday’s trading session was nearly 18% at Jet’s front, as the company touched an intraday high of Rs 266 per piece on the same index. 

In a filing to exchanges, Jet revealed that the board of directors have approved the resolution plan set by a consortium of domestic lenders led by SBI. 

Under this plan, firstly, issue of 11.4 crore equity shares of Jet Airways to the Lenders upon conversion of Rs  1  of the outstanding debt has been approved. 

Shockingly, resignation by Naresh Goyal, wife  Anita Goyal and Kevin Knight Etihad Airway’s promoter, as directors of the Company, and induction of 2 (two) nominee directors of Lenders. Additionally, Naresh Goyal will also cease to be the Chairman of Jet Airways. 

Apart from this, the board also approved, creation of appropriate security over the company's assets for securing the existing facilities extended by the Lenders and the proposed immediate funding support of up to ~Rs 1,500 Crores by way of issue of appropriate debt instrument; and constitution of an Interim Management Committee to manage and monitor the daily operations and cash flow of Jet. 

Coming to Naresh Goyal, he started operating Jet Airways in 1993 with an initial seed funding from Tail Winds which is incorporated as the Isle of Man. Under Goyal, at first, Jet functioned as air taxi operator. In the first year of inception itself, Jet owned a market share of 6.6% in domestic aviation, which further extended to 20% in fiscal year FY1997. After being launched for IPO in 2005, Jet Airways presence was robust and strong as it was the largest airline with 22.6% market share by the end of 2010. 

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#CorporateRadar | रेजोल्यूशन प्लान पर #JetAirways की बोर्ड बैठक शुरू, बैठक में क्या कुछ फैसले हो सकते हैं बता रहे हैं ब्रजेश मिश्रा। @BrajeshKMZee @devganrajat9 pic.twitter.com/wRQJ4i0ok2

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However, this changed since Indigo started to gain traction with low and budgeted airfares. Apart from stiff competition from Indigo, the problem of Jet Airways was far worse and it did play out last year in 2018. 

Due to rising aviation fuel costs, lease rentals and higher expenditures have dented Jet Airways profit, so much so, that the company was having a cash crunch. This led to further add fuel in the airline’s problem, as the company has started to default on debt repayment, grounded majority of its fleets and exit from manpower. 

Watch this Zee Business video to know more about Jet Airways and Naresh Goyal:

While both Etihad and Goyal have been reluctant in solving Jet Airways issue, hence, the exit was expected. Currently, Goyal holds about 5,79,33,665 equity shares in Jet Airways - which is 51% of the airline’s share capital as on December 2018. The second holder is Etihad who has 24%.

Under the resolution plan, Jet Airways debt will be converted into  11,40,00,000 shares of Rs. 10/- each by allotment of such number of equity shares to the Lenders that would result in the Lenders becoming the largest shareholders in the Company.  The cost of converting debt to equity is set at a consideration price of Re 1.