In an attempt to stay afloat, Jet Airways has sought shareholder approval to issue new equity and convert existing debt into equity among other things at a special general body meeting, indicating that banks are likely to convert part of the debt into equity.
The company will also seek approval to allow its lenders to nominate directors to its board, the airline said in a stock exchange filing. The company has proposed that share capital be increased to Rs 2,200 crore from Rs 200 crore by creating an additional 500 million shares and 1.50 billion preference shares. This could be to facilitate conversion of debt into equity by lenders as part of the restructuring plan. The company has sought “the consent of the shareholders… to convert the whole or part of the outstanding under loans, extended/ to be extended by the lenders into shares or convertible instruments or other securities of the company as per the terms contained in the respective loan”, it said.
Within the overall existing borrowing limit of Rs 25,000 crore of the company, the company has sought permission to negotiate and finalise the terms and conditions with the lenders for raising further loans from time to time, and provide the lenders with a right to convert such loans into shares, or convertible instruments or other securities, of the company any time until there are amounts outstanding under such loans in accordance with the terms of the lending agreements, the company has said. The EGM will be held on February 21.
State Bank of India had said the lenders are considering a restructuring plan for the airline. 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, SBI had said. The conversion price of debt is likely to be a contentious issue. However, Etihad, which holds 24 per cent stake in Jet Airways, had offered to buy Jet shares at a 49 per cent discount — at Rs 150 per share — and bail out the carrier. Jet shares closed 3 per cent down at Rs 245.40 on the BSE on Monday.
Bankers are moving cautiously on the issue of debt conversion as they had burnt their fingers badly in Kingfisher Air of Vijay Mallya in which debt conversion happened before the airline collapsed.
Etihad wants Jet’s founder and Chairman Naresh Goyal to step down from the board and his stake to be slashed to 20-22 per cent from 51 per cent. Etihad has also reportedly sought exemption from making an open offer to other shareholders.
If lenders convert their debt into equity, they will hold a substantial stake in the airline. However, the company needs cash on an urgent basis as many repayments and dues are nearing the deadline. Currently, institutions, including mutual funds, hold 9 per cent stake in the airline while promoters — the Goyal family — have 51 per cent stake.