ICICI-Videocon case whistleblower warns about SBI-led Jet Airways' revival plan
BusinessToday.In February 13, 2019
Shareholder activist Arvind Gupta, who made headlines as the whistleblower in the ICICI Bank's alleged quid pro quo loans to the Videocon Group under former CEO Chanda Kochhar, is now raising questions over the country's largest lender SBI's efforts to bail out Jet Airways. According to him, the "questionable" Memorandum of Understanding effecting a debt to equity swap in "the flying NPA" is a "self-defeating exercise" that will rob State Bank of India (SBI) stakeholders of their hard-earned savings.
Saddled with a debt of about $1.14 billion, Jet Airways has been scrambling to raise fresh capital as well as restructure its debt. In a regulatory filing last month, the airline said that it was working on a resolution plan with a consortium of banks led by SBI that "contemplated various options on the debt-equity mix, proportion of equity infusion by various stakeholders and the consequent change in the composition of the company's board of directors".
The buzz is that SBI may end up with a 15% stake in the Naresh Goyal-owned airline should the latter get approval for the debt-equity swap. Though the proposal reportedly hinges on the outcome of a forensic audit of the airline currently being undertaken by consultancy firm EY, Jet Airways will be seeking shareholders' nod for the same on February 21.
As the Trustee of Indian Investors' Protection Council (IIPC), Gupta, who is also a shareholder in both SBI and Jet Airways, wrote to SBI chairman Rajnish Kumar on Monday red-flagging the move on the understanding that it entails the bank taking a "substantial haircut".
According to Gupta, "upon conversion of outstanding debt into equity share holding of around 15% equity in Jet, SBI's financial adventurism will expose public funds to a serious NPA risk" and, hence, calls for "serious" reconsideration. He also pointed out that the upcoming extraordinary general meeting (EGM) called by Jet Airways "suggests that SBI has consented for some financial restructuring for revival of the airline by converting outstanding loans of different maturity and for appointing SBI nominees" on the board of Jet Airways. "This also implies that apart from being a banker to small investors, SBI will assume a role of equity investor in a private airline," added the letter.
So ahead of the EGM, Gupta has sought responses from the SBI chief on several issues, including whether the forensic audit entrusted to EY, which covers the period from 2014 to 2018, has absolved Jet Airways of all wrongdoing and whether the proposal for the debt to equity swap in a private aviation company is "consistent with the stated objective of the incorporation of the SBI" as well as RBI guidelines and the IBC process.
"I suspect that the soft handling of the financial sickness in Jet Airways by SBI will result in transferring the ownership and control of [a] leading Indian airline to a foreign aviation company at the expense of [the] domestic aviation industry which is against both the national interest and interest of shareholders," concluded Gupta.
This, incidentally, is not the first time that the shareholder activist is taking on Jet Airways. According to The Business Standard, in 2016, Gupta had complained to the government alleging that over Rs 5,000 crore was siphoned out of the airline by its promoter Naresh Goyal through several questionable transactions.
The way forward for Jet Airways will depend on the outcome of the EGM. Meanwhile, during a media call after SBI's Q3 results, Kumar said that the consortium of banks that the airline owes money to will restructure loans under the 'Sashakt' plan for resolution of stressed assets outside the insolvency courts. According to the daily, the Jet debt recast proposal will now go to screening panel at Indian Bank's Association (IBA).
Edited by Sushmita Choudhury Agarwal