People watch as a Jet Airways (India) Ltd. aircraft prepares to land at Chhatrapati Shivaji International Airport in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

SBI Chairman Says Banks To Exit Jet Airways In Two Months

Mar 25 2019, 11:19 AMMar 25 2019, 11:41 AMMarch 25 2019, 11:19 AMMarch 25 2019, 11:41 AM

Lenders to Jet Airways (India) Ltd. are confident of exiting their majority shareholding in the airline within two months, Rajnish Kumar, chairman, State Bank of India (SBI) told BloombergQuint. There is enough investor interest in the airline and the door is open to all interested parties including existing shareholders, Kumar said.

In a last ditch effort to save the airline, lenders to Jet Airways have agreed to take over 50.5 percent stake in the airline. The stake issued to the banks will be valued at Re 1 on their books. As part of the resolution plan, promoter Naresh Goyal, his wife Anita Goyal and one representative of Etihad Airways PJSC will step down from the board of the airline.

An interim management committee will be appointed to run day-to-operations until lenders find a buyer for their majority stake.

Kumar expects the entire process to be completed in two months.

Our assessment is two months. And by that time we expect to complete the sale process. I am not giving any guarantee because a banker’s guarantee has a lot of value. I am not giving any guarantee that everything will be positive. I am only giving you my assessment of the situation. But there is a good possibility that lot of investor interest will come in.

Rajnish Kumar, Chairman, State Bank of India

As part of the resolution plan, the lenders will also provide immediate debt support worth Rs 1,500 crore, the airline informed stock exchanges on Monday.

According to another banker in the know of the developments, the lending consortium will meet later on Monday to determine a priority table. This will be used to determine how the interim financing will be split between payment of dues to lessors, employees of Jet Airways and other funding needs. The funds, however, may not prove to adequate. A second person familiar with the matter had estimated the funding requirement at Rs 3500 crore.

According to Kumar, the interim financing will be adequate for a two-month period and will be disbursed in the form of secured financing.

The restructuring of equity and debt is in such a manner that the facility which is being proposed is fully secured. It (Rs 1,500 crore funding) will be likely a 10-year instrument, details of which will be given out. It will not be a listed debt instrument.

Rajnish Kumar, Chairman, State Bank of India

Bankers had little choice but to move forward with taking over majority equity in Jet Airways. Months of negotiations to get Goyal and Etihad to commit more funds to the airline proved to be futile. After initially showing interest, Etihad, last week, informed lenders that they are willing to sell their stake at Rs 150 per share, BloombergQuint reported last week.

With no obvious white-knight in sight, banks had no choice but to step in.

Jet Airways has a debt of Rs 10,000 crore. SBI and Punjab National Bank have the largest exposures worth around Rs 2,000 crore each. The airline had informed stock exchanges on January 1 that it had defaulted on its dues.

According to the February 2018 guidelines of the Reserve Bank of India (RBI), banks are expected to finalise and implement a resolution plan for a defaulting company within 180 days of the first default. If they fail to do that, they will be forced to admit the company for insolvency proceedings.

While speaking to BloombergQuint, Kumar stated that if the current plan is construed as restructuring under RBI guidelines, they would need to mark down Jet Airways as a non-performing asset (NPA) by March 31. A NPA classification attracts a minimum provisioning of 15 percent, as per the income recognition and asset classification guidelines of the RBI.

Watch the full interview here: