India: Jet Airways may raise $560m via rights issue if Etihad open offer fails

Photo: Bloomberg

Jet Airways (India) Ltd may consider raising ₹4,000 crore through a rights issue if the Securities and Exchange Board of India (Sebi) denies an exemption to Abu Dhabi-based Etihad Airways PJSC from making an open offer in lieu of raising its stake in the cash-strapped carrier, said two people with direct knowledge of the matter requesting anonymity.

Jet Airways’ promoter and founder Naresh Goyal, Etihad Airways the airline’s lenders will subscribe to the rights issue as part of the resolution plan, said one of the persons cited above.

The banks-led provisional debt resolution plan, approved by the Jet Airways board, proposes restructuring under provisions of the RBI to meet a funding gap of nearly ₹8,500 crore. The gap is to be met through a mix of equity infusion, debt restructuring, sale, sale and leaseback (SLB), and refinancing of aircraft, among others.

In an extraordinary general meeting (EGM) on 21 February, shareholders of Jet Airways will vote on a proposal to raise its authorized share capital from ₹200 crore to ₹2,200 crore through a special resolution. The proposal from Jet Airways also contains a plan to give lenders the right to nominate one or more members on the airline’s board, post conversion of debt into equity.

Etihad could look at subscribing either jointly or individually, the second person said.

Jet Airways did not respond to emailed queries.

The Mumbai-based airline had last week approved a bailout plan that would allow its domestic lenders, led by State Bank of India (SBI), to convert their loans into equity, making them the largest shareholders of the cash-strapped airline.

The decision to raise funds through rights issues comes after the domestic lenders decided to convert existing debt into 114 million shares at a consideration of ₹1 according to Reserve Bank of India (RBI) norms.

Following the debt conversion, lenders will pick up more than 50% stake and the equity holding of Goyal and Etihad will halve to 25% and 12%, respectively. Goyal and Etihad currently own stakes of 51% and 24% in Jet Airways, respectively .

The airline had said it is working on a comprehensive resolution plan towards a turnaround for sustained growth and restoration of financial health. It added that the resolution plan “contemplates various options on the debt-equity mix, proportion of equity infusion by the various stakeholders, and the consequent change in the composition of the company’s board of directors”.

The lenders are also looking at converting the existing debt of ₹1,000 crore into equity type of products through cumulative redeemable preference shares, which will be repaid over a period of 15 years, said one of the persons mentioned above.

“Lenders will infuse this additional funds on a pro rata basis. The company on the other hand will raise additional ₹2,000 crore through sale and lease buyback of aircraft,” the person said.

Jet Airways has been struggling with cash flows for the past six months because of rising fuel costs and intense competition. The cash crunch forced the airline to delay salaries to pilots and interest payments on its debt.

“Banks will not become promoters (of Jet Airways),” chief financial officer Amit Agarwal said during an analysts call.

The airline’s CEO Vinay Dube said that Jet Airways will remain a professionally-run company where the management reports to the board of directors. The company, which has delayed payment of dues to several of its lessors and vendors, hopes to mitigate the situation in the coming days.

Etihad had earlier offered to buy Jet shares at a 49% discount— ₹150 per share—and bail out the carrier. Etihad’s chief executive officer Tony Douglas had on 15 January written to SBI-led lenders about the possibility of increasing its stake.

Etihad, however, wants Jet Airways’ founder and chairman Goyal to step down from the board and his stake to reduced from 51% to 20-22%.

This article was first published on livemint.com.

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Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

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  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.