11 March 2019: Jet Airways (India) Ltd has secured fresh credit facilities of ₹2,050 crore from state-run Punjab National Bank (PNB) that could provide a temporary lifeline to the cash-strapped airline. The Mumbai-based airline has raised foreign currency term loans worth ₹1,100 crore and a non-fund based credit facility of ₹950 crore from PNB, according to loan documents, copies of which were reviewed by Mint.
Although the documents mention that Jet Airways will use the credit facility for its working capital needs, a person directly aware of the airline’s plans said on condition of anonymity that the money would be primarily used to pay rental dues to aircraft lessors and salary arrears.
If the loan proceeds are used to pay dues to lessors and pare the company’s debt, then this may improve Jet Airways’ credit rating and also help it resume flights it stopped after at least 49 leased planes were grounded since 8 February because of non-payment of rents.
A spokesperson for Jet Airways did not respond to an emailed questionnaire.
In an emailed response to queries, a spokesperson for Abu Dhabi-based Etihad Airways PJSC, which has a 24% stake in Jet Airways, said: “As a minority shareholder, Etihad continues to work constructively with the Jet Airways board, management team and other stakeholders.”
The credit facility has been raised in two lots through separate agreements with PNB. Under one agreement, Jet Airways received a credit facility of ₹1,050 crore, including a term loan in dollars worth ₹350 crore (at a notional rate of ₹67 per dollar) and a non-fund based facility of ₹700 crore. The second agreement, a credit facility of ₹1,000 crore, includes a term loan of ₹750 crore and a non-fund based facility of ₹250 crore.
“The loan has been raised in dollars at a stronger rupee as compared to the value of rupee now. So, there is a cost arbitrage, which could help the company to repay larger amounts of rupee loans,” said the person cited earlier.
Both the term loans have a five-year repayment tenure, although their interest rates vary. The ₹750 crore loan has been sanctioned at a rate of 12-month Libor plus 5%, with a yearly reset. The rate for the ₹300 crore term loan is 6-month Libor plus 3.5%, with a half-yearly reset. The loan agreement was signed on 14 January.
Jet Airways has an option to sell down as much as ₹250 crore of the term loan to other investors, according to the loan agreements with PNB. “The non-fund based facility can be later converted to current account credit facility and be used to fund operations or meet other dues,” said the person cited earlier.
As a precondition to availing the credit facility, Jet Airways has created a trust and retention account (TRA) by entering into a tripartite agreement with PNB and ICICI Merchant Services Pvt. Ltd. A TRA mechanism—popular in infrastructure projects—is structured to protect lenders against the borrower defaulting by sequestering the project’s cash flows. This is achieved by giving the TRA agent control over future cash flows.
The tripartite pact mandates the TRA agent to directly make all payments to lenders, without the borrower’s intervention, including managing the project’s operation and maintenance expenses, plus maintaining a debt servicing reserve and a separate cash reserve for meeting operational expenses. After meeting these obligations, TRA hands over the balance funds to the borrower.
According to the agreement, copies of which have been reviewed by Mint, TRA has the right to receive all the money coming to Jet Airways through its agent, ICICI Merchant Services.
PNB’s ₹2,050 crore credit facility to Jet Airways has been secured against its four flight training simulators, trade receivables coming to ICICI Merchant Services and any additional receivables coming to TRA by virtue of Jet Airways’ agreement with PNB or any other merchant services provider in the future.
As of 31 December, Jet Airways’ total outstanding dues, including loans and other payables, were ₹9,610.16 crore. The firm said it incurred a total loss of ₹3,208.23 crore in the nine months through December, with negative net worth of ₹10,370.24 crore.
“These conditions, together with four successive quarters of losses due to high fuel prices and fluctuating currency rates, coupled with tight liquidity conditions, pose a serious challenge to the company, indicating the existence of material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern,” the auditors of Jet Airways said in a note accompanying the company’s financial statement.
Ratings agency Icra Ltd downgraded Jet Airways’ credit ratings in September, October, December 2018 and January 2019. On 23 February, Jet’s board approved the conversion of some of its loans into equity, which will lead to founder and chairman Naresh Goyal’s stake dropping from 51% to below 20%.
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