1 June 2019: Lenders to Jet Airways are reluctant to agree to a restructuring proposal with a large haircut and debt conversion. Banks are seeing limited upside on a proposal where they will have to make large upfront provisions and wait for a long time for offloading the equity they will hold through debt conversion.
This means that chances of lenders approving a restructuring package for the airline, without a government nudge, are low.
On Friday, SBI chairman Rajnish Kumar’s meeting with bureaucrats in the aviation ministry raised speculation of a new resolution plan for Jet Airways. Hardeep Puri, the newly-appointed minister of state with independent charge of aviation ministry, was petitioned on social media by employees and customers of the grounded airline to help revive it.
Sources said that the proposal Hinduja group has in mind involves a huge haircut, fresh loans and partnership by Etihad and one more financial investor. “They (Hindujas) are aware that there are no other bidders and that in an airline there is not much scope for recovery through the bankruptcy route,” said a banker. But despite not having alternatives, lenders are reluctant as there is a likelihood of the airline coming under a probe by the Serious Fraud Investigation Office (SFIO).
Besides the overhang of investigation, Jet Airways has seen its top management exit. On Thursday the airline said that it was not able to approve its annual results due to the large-scale attrition in its board and senior management.
While announcing SBI’s financial results earlier this month, Kumar had said that the bank had made disproportionate efforts in reviving the airline to which it had a Rs 1,600-crore exposure. He said that the bank had already started making provisions towards these loans. Among others, the second-largest lender Punjab National Bank has not yet classified Jet Airways as a non-performing asset (NPA) but has made provisions towards its loan. IDBI Bank has classified Jet as an NPA and has made provisions.
Should the banks agree to an 80% haircut they will have to immediate make provisions in their financial results as what they have set aside is less than half of their loan. According to a senior executive with an asset reconstruction company (ARC), bankers can look at parking their loans with an ARC. This will enable them to facilitate a revival without management of several banks having to expend efforts on their loan with a very small recovery.