Banks seek bids to sell 31.2% to 75% share in Jet Airways

Under the resolution plan, the board of Jet Airways approved conversion of the lenders’ debt into equity by the issuance of 11.4 crore equity shares, in accordance with the RBI Circular of February 12.

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Jet Airways aircraft parked at the Chhatrapati Shivaji Maharaj International Airport in Mumbai. (Express photo by Pradip Das)

Even as a consortium of domestic lenders to Jet Airways is tweaking the airline’s resolution plan that was announced in accordance to the February 12 circular of the Reserve Bank of India — declared ultra vires by the Supreme Court — they invited bids on Monday from strategic and financial bidders to pick up stake in the airline. The banks have proposed to offer at least 3.54 crore shares of the airline comprising 31.2 per cent of equity share capital of the company and up to a maximum of 8.51 crore shares comprising 75 per cent of the share capital of Jet Airways.

Under the resolution plan, the board of Jet Airways approved conversion of the lenders’ debt into equity by the issuance of 11.4 crore equity shares, in accordance with the RBI Circular of February 12. With this, the consortium of Indian lenders, led by State Bank of India (SBI), were to become the majority shareholders of Jet Airways. However, even though the bankers have floated an expression of interest for the stake sale, it is unclear whether the debt has been converted to equity.

Explained | Want a stake in cash-strapped Jet Airways? What you need to know

“The company (Jet Airways) has availed of various credit facilities from a consortium of domestic Indian lenders, led by State Bank of India. The company has subsequently come under financial stress and not been able to service its payment/repayment obligations, inter alia, in relation to the facilities. Accordingly, the lenders, pursuant to the guidelines issued by the Reserve Bank of India (from time to time), are in the process of formulation of a resolution plan for resolving stress in the company, inter alia, involving change in control and management of the company,” the bid document said.

It further said that the bidders can be strategic investors (SIs) and/ or financial investors (FIs). “SIs may include corporates having experience in similar sectors with domestic or global experience or both. FIs may include private equity funds, investment funds etc,” it said.

Potential buyers must submit their interest by April 10, SBICAPs said in the bid document. A strategic bidder should have a net worth of at least Rs 1,000 crore in the preceding financial year, or at least three years of experience in the airline business. Accumulated losses in over the last decade have resulted in Jet Airways delaying payments to banks, lessors and employees, leading to founder Naresh Goyal being forced to give up control of the carrier.

Consortiums submitting bids should have no more than three members, with each holding a share of no less than 15 per cent. After qualified bidders are selected, they will be given access to the company’s data and the bid document.

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Doubts over airline’s ability to meet working capital requirements

With the banks yet to find a buyer for Jet Airways, question remains over the airline’s ability to meet working capital requirements. This is also because the Rs 1,500 crore proposed to be infused into the airline by its lenders has not yet come in. Till such a time money is injected into Jet Airways, The situation remains fluid. On most domestic routes, Jet has been deploying aircraft that had been leased, which lessors are beginning to repossess now.

However, it also noted that government promoted funds, quasi sovereign wealth funds shall not be required to meet the qualification criteria, as stated above. Further, it said, such funds shall not be required to respond to expression of interest and would be eligible to directly procure bid document free of cost and submit their bids till the last day announced for submission of bids.

The bid process comprises of two stages. In the first stage, qualified bidders will be selected and this will be followed by bid stage where submission and evaluation of the bids and selection of the successful bidder will be done. Lenders, led by SBI, had said last week that “other options” may be considered if efforts for the stake sale “don’t produce the desired result”.

Jet Airways’ share, on Monday, ended trading at Rs 264.10 — 3.14 per cent higher than Friday’s close on the BSE. Sensex closed 0.42 per cent lower.