SBI, PNB may buy other banks' exposure to debt-laden Jet Airways

Lead bankers of Naresh Goyal-led Jet Airways are likely to buy out the exposure of other smaller lenders, which are hesitant to participate in the debt-equity restructuring process, it is learnt. Simultaneously, the size of the rights issue is likely to be increased from the proposed Rs 2,500 crore to around Rs 4,000 crore. As part of the final steps to stitch together a resolution plan, the stake to be held by the National Investment and Infrastructure Fund (NIIF) would possibly be higher than the proposed 19.5 per cent. The sovereign fund is yet to firm up a decision on the matter.

The resolution process, to bridge a funding gap of around Rs 8,500 crore, has been delayed as multiple stakeholders have failed to arrive at a consensus so far.

“In discussions among the lenders’ consortium, it has arisen that at least three Indian lenders and one foreign bank are not willing to participate in the debt–equity restructuring process. The principal lenders — State Bank of India (SBI) and Punjab National Bank (PNB) — may invoke the Inter Creditor Agreement (ICA), which would mean that the smaller creditors can sell their exposure and exit,” said a banker aware of the resolution process.

According to ICA, if 66 per cent of lenders by value agree to a resolution plan, it would be binding on all lenders. The dissenting creditors will, however, have the option to sell their loans to other lenders. 

SBI and PNB together have more than 65 per cent exposure to Jet Airways and hence have the right to invoke the ICA to hasten the process. The other banks in the consortium include IDBI Bank, Indian Overseas Bank, Syndicate Bank and foreign lenders such as Citibank, Mashreq Bank, and Standard Chartered.

According to the plan proposed by the SBI, the lenders will convert a part of the company’s debt into Cumulative Redeemable Preference Share (CRPS), that would give the lenders the right to dividend on these shares whenever the company returns to profit. “Other banks are not comfortable with the idea of converting a part of their debt into CRPS that pay dividends. They fear that Jet Airways is a loss-making company and will be unable to pay the dividends on the instrument in coming years,” said a person aware of the development.

The resolution process entails a mix of equity infusion, debt restructuring, and asset monetisation aimed at filling the funding gap of around Rs 8,500 crore. This includes proposed repayment of aircraft debt of around Rs 1,700 crore. To monetise Jet Airways’ assets, the bank-led resolution plan will recommend sale, leaseback or refinancing of aircraft, among other things. The board of Jet Airways has already approved a draft resolution plan, which comprises conversion of debt into 11.4 million shares.

The lenders are also looking to increase the size of rights issue to around Rs 4,000 crore, from the proposed Rs 2,500 crore as foreign partner Etihad Airways has refused to infuse more than Rs 1,450 crore.

Etihad’s stance was conveyed to the bankers and Jet Airways at a meeting called by the SBI last week. The bank-led restructuring of Jet Airways, which is struggling with more than 30 planes grounded due to non-payment to vendors, has been delayed as stakeholders including Etihad Airways have raised questions about the process. However, sources suggest that the Abu-Dhabi based airline which holds 24 per cent stake in Jet will approve the process on March 11.

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