9 April 2019: Jet Airways’ lenders are offering prospective bidders ownership of anywhere between 31.2% and 75% in the stricken airline even as the bidding process got off to a slow start on Monday with no investor response on the first day of call for expressions of interest. There were also no queries, two people close to the development said. The call for EoIs closes at 6 pm on April 10.
The lenders, led by the State Bank of India, have stepped up efforts to engage with Etihad Airways — Jet’s second-largest shareholder that wants an exemption from a capital markets rule to consider re-investing in it — on an urgent resolution path for the airline.
They have also reached out to PE investors including TPG, and homegrown National Infrastructure Investment Fund (NIIF) as well as US Air Lines apart from domestic conglomerates such as Tata and Adani groups. Lenders are expecting some response in the next two days and the extent of equity on offer to investors is conditional upon approval from the Reserve Bank of India (RBI) for the conversion of loans into equity in Jet. The lenders are trying their best to stave off the possibility of Insolvency and Bankruptcy Code proceedings that ominously draws closer for Jet if no solution is found quickly.
As on date, lenders can only offer about 32% of the airline’s shares that are pledged with them by founder Naresh Goyal, said a senior SBI official.
Goyal stepped down from chairmanship and board of the airline on March 25 and the lenders agreed, with a board approval from Jet, to convert loans into equity giving them about 51% in the airline. But this conversion was thrown into doubt last week when the Supreme Court set aside RBI’s circular of February 12, 2018, under which the Jet loan restructuring plan was arrived at.
As a result, Jet’s shareholding structure remains the same now: 51% owned by Goyal, 24% with Etihad Airways and the rest with public.
Banks are now waiting for RBI approval for the loan conversion. If it doesn’t come for some reason, a prospective buyer or group of buyers can only buy 31.2% which is the extent of the pledged equity. They can then make an open offer and increase their stake to beyond 51%. Indian capital market rules trigger such an offer when shareholding level crosses 25%.
“But there is no time to wait for approvals or a new circular as Jet needs urgent cash. So the lenders and SBI Capital Markets have opened up the process and are trying to work out a solution with Goyal and Etihad on how to put more shares on the block,” said the official.
Etihad does not want to make an open offer to the public but lenders are still trying to persuade the firm to participate. The Gulf carrier is sticking to its condition of exemption from the open offer rule.
The official cited above said it’s highly unlikely that such an exemption would be made, which leaves Etihad the option of teaming up with other investors or stick to its earlier decision of exiting Jet.
An Etihad spokesperson said the airline wouldn’t comment on speculation. Emails to Jet and SBI remained unanswered till the time of going to press.
The bid document says the owner will take over between 31.2% (3.5 crore shares) to 75% (8.5 crore shares) shareholding of Jet. By that measure, the total number of shares comes to 11.4 crore, the same number that was to be issued to banks.
The document says the bidder can be a strategic investor having a minimum net worth of Rs 1,000 crore as of FY18, Rs 1,000 crore funds available for investment in an Indian company or asset, and three years of commercial aviation experience. It can also be a financial investor with Rs 2,000 crore assets under management or Rs 1,000 crore funds available for investment in an Indian company or asset. Alternatively, it can be a consortium of not more than three entities with each entity holding a minimum of 15% in the grouping and the leader holding a minimum of 26%.
There is no clause that says that a strategic investor has to be part of the consortium which means a cluster of PEs can also invest in the airline.
The bid document says that a government-promoted fund or quasi sovereign wealth funds need not meet the qualification criteria.
“Further, such funds shall not be required to respond to EoI and would be eligible to directly procure the bid document free of cost and submit their bids till the last day announced for submission of bids,” it said.
The document said lenders have initiated the bidding process because Jet failed to honour its debt obligations. The winning bidder will get ownership of the company and will settle “the obligations of the company in relation to the existing facilities”, it said.
Jet has a net debt of Rs 8,500 crore on its books.