Jet Airways’ revival delayed by Etihad’s hard bargain

• A group of banks led by SBI are expected to take the largest stake in the airline.
  
• Etihad seems reluctant to take control of the airline, after offering to buy additional shares at a very low price.
  
• Either way, the airline’s owner Naresh Goyal is set to lose his majority stake.

The probability of Jet Airways being taken over by a group of creditors, led by State Bank of India (SBI), looks more and more likely as discussions between the various stakeholders reach their final stages.

The news comes amid reports that Etihad only offered to increase its stake in the cash-strapped airline by buying shares at only ₹150 a share- a 42% discount to Jet’s current share price - and demanded the complete exit of owner Naresh Goyal and his family as well as the right to appoint a CEO. In a stock exchange filing yesterday, Jet rubbished the reports and reiterated that its restructuring plan was fully underway.

However, as Etihad drives a hard bargain, it seems more likely than not that Jet Airways’ creditors will be forced to become the airline’s largest shareholders after converting their debt into equity. In fact, sources told Business Standard that the SBI-led consortium of banks would end up with a 40% stake in the airline, while Etihad would only raise its 24% stake by a few percentage points.

The move will effectively push Naresh Goyal out of the driver’s seat by halving his 51% holding. WIth the changes in ownership, the composition of the airline’s board of directors will also change, with several banking executives taking seats to oversee the resolution plan.

While Goyal will lost his majority holding, a complete exit seems unlikely. He has reportedly offered to pump in ₹7 billion of his own cash into the airline on the condition that he retains at least a 25% shareholding, according to a letter he wrote to SBI Chairman Rajnish Kumat that was seen by the Press Trust of India.

The proposed bailout of Jet Airways by the very banks that it owes money to follows the completion of a forensic audit of the airline’s debts and unreleased financial accounts. The audit, which was undertaken by Ernst and Young, a consultancy, reportedly failed to show any financial malfeasance or diversion of funds at the airline, just shoddy management.

Jet Airways has around ₹17 billion of debts to banks other than its domestic creditors maturing by the end of March 2019. If it is to pay back those loans, the restructuring plan - which includes a capital infusion by Etihad and Jet - will have to be kickstarted as soon as possible.


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