Jet Airways plan to convert debt to equity, another Kingfisher redux?

The Board of the beleaguered Jet Airways will meet on February 21 to discuss a fresh resolution plan being considered by lenders triggering speculation whether it will end up as a redux of the Kingfisher Airlines disaster that eventually led to Vijay Mallya being declared a fugitive economic offender.

In a stock exchange filing on Monday, Jet Airways said an Extraordinary General Meeting (EGM) of the company would be held on February 21.

It said a special resolution would be put forth in the EGM to consider and "to approve conversion of loan into shares or convertible instruments or other securities".

The private carrier on January 1 defaulted in paying interest and instalments on loan repayments due to banks, following which rating agency ICRA downgraded both the short and long-term credit facilities of the airline.

With no resolution forthcoming and a deadlock persisting, Abu Dhabi-based Etihad last week submitted a fresh proposal for a stake hike in Jet Airways, proposing a rights issue worth $500 million.

Through this mechanism, Eithad proposes to hike its stake to 49 per cent in Jet Airways.

Etihad currently holds 24 per cent in Jet Airways and the rights issue by Etihad is expected to be at around Rs 160 per share. It is likely to infuse Rs 2,170 crore by subscribing to the rights issue. 

Other lenders, including the consortium of banks led by state-run State Bank of India (SBI), are also expected subscribe to the rights issue to convert part of the debt to equity in Jet at the heavily discounted price of Rs 1 per share, sources here said. 

"SBI would like to state that lenders are considering a restructuring plan under the RBI framework for resolution of stressed assets that would ensure a long term viability of the company," a spokesperson with the bank said earlier this month.

SBI has a 90-day window till March 31 before its Jet Airways loan account becomes a non-performing asset (NPA) which would require the bank to make sizable provisioning on this count. 

On expiry of the end-March deadline, the lenders consortium has the option to take Jet Airways before the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code for initiating the process by which buyers can take over the carrier through a bidding process.

Referring to reports on the contours of the fresh resolution plan, a Jet Airways spokesperson had said earlier this month: "This includes speculative reports on pricing relating to any possible investment in the company." 

The tragic precedent to this case, especially for the SBI, is of the failed Kingfisher Airlines which managed to convert part of its debt to equity at a premium on the prevailing market price and how that story finished with Mallya fleeing abroad is well known. 

Analysts point out that as a bank, SBI has neither the expertise, nor would it have the requisite size of shareholding on converting its debt to equity in Jet Airways, to be able ensure the long term viability of the airline.

According to Jet Airways sources, the rights issue has been chosen as the right instrumentality to negate the need of open offer by Eithad, which the latter has been unwilling to do.

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In 2013 too, UAE-based Etihad Airways had come to the rescue of Jet Airways by acquiring a 24 per cent stake in the Indian airline, paying nearly 50 per cent premium on the prevailing market price of Jet`s stock. 

The stock of the Indian airline, which had made its initial public offer (IPO) in 2005 at a premium price of Rs 1,100 for each Rs 10 share, closed on Monday at Rs 245.40 a share, down Rs 7.75, or by over 3 per cent, on its previous close on the BSE.