Jet Airways crisis: SBI-led consortium stares at 60-80% haircut

With Jet Airways now wingless, its suitors are looking to drive down valuations as low as possible. And that translates into a steep haircut for the consortium of 26 banks, led by SBI, which has an exposure of over Rs 8,500 crore. The four shortlisted bidders- Etihad Airways, Jet's largest shareholder, TPG Capital, Indigo Partners and National Investment and Infrastructure Fund (NIIF)- have been issued bid documents on April 16 and the deadline for final bid submission is May 10.

Apart from the huge debt owed to the banks, Jet Airways owes about Rs 3,000 crore to vendors, airport operators and fuel companies, not to mention the pending salaries of its 16,000-strong workforce. However, the potential investors have said they would only take on 20% of the airline's debt, The Economic Times reported. "Jet's value is plummeting every single day. Rather than foregoing the entire loan, which is what will happen if there is no investor, the lenders should be happy taking a 60-80% haircut," a person in the know told the daily.

The bidders have severely criticised the banks' refusal to release emergency loans earlier this week. Jet Airways' CEO Vinay Dube had informed lead banker SBI on Tuesday that without an immediate infusion of Rs 400 crore, the airline would have to suspend all operations. Left with no cash to keep its remaining five planes flying, the airline had no choice but to shut shop, at least temporarily.

According to sources, while the investors are ready to provide funds, the lenders have made it challenging for any bid to work in the time frame required. They reportedly see Jet Airways' grounding as an opportunity to expedite the sale process but this does not allow the bidders enough time for adequate due diligence.

The lenders have said they want to rework all lease and engineering contracts of the grounded airline and halve lease rentals. They also plan to demand a significant reduction in maintenance reserves- the money that needs to be parked with a lessor- given that the aircraft will undergo wear and tear. However, even if these cuts come through, investors estimate that Jet Airways will need up to Rs 20,000 crore over the next three years. This includes funding towards estimated losses, dues and investments in improving operations.

The shortlisted bidders, meanwhile, come with their own restrictions and baggage. NIIF reportedly doesn't want its stake to go beyond 20% while Etihad has said it wants to retain its stake at 24%. While the bid document allows for a consortium of bidders, any grouping that Etihad forms with NIIF and/or TPG and Indigo Partners would breach the 25% shareholding limit that triggers an open offer for another 20% stake. According to the daily, Etihad does not want to be part of an open offer as that "may be used as an exit strategy by minority investors" instead of fetching funds for the airline. Besides, the Gulf carrier is not in great shape at the moment having posted $1.3 billion losses in core airline operations in 2018.

There's one more catch. Jet Airways' lenders have told the shortlisted investors to bid independently, which would actually mean competing bids. "Then the lenders will come to an understanding on what each investor will own in the airline," a source explained, adding that this had added to the confusion and the investors "basically have no clue what they are bidding for".

If the current sale doesn't go through, the bankers will have the opportunity to explore a resolution under the new revised circular that the RBI is expected to issue shortly. After April 30, the field will also open for operational creditors to take the airline to IBC, where banks will have little control as the resolution mechanism gets triggered. The financial creditors will also have to take care of the interest of operational creditors before working out a resolution. Experts believe that bankers may have to settle for a 50-60% haircut in this route too.

(Edited by: Sushmita Choudhury)

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