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Etihad Conveys To SBI, Won’t Lend Further In Jet Airways

Etihad Conveys To SBI, Won’t Lend Further In Jet Airways

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Etihad Airways is said to have officially conveyed to State Bank of India, Jet Airways’ major lender that it will not make any further investment in the airlines. It will also withdraw from the fundraising deal drawn up by the consortium of lenders. 

The Gulf airline, which owns about a quarter of Jet, may eventually exit, making prospects of the beleaguered airline’s revival bleak.

Meanwhile Jet Airways chairman Naresh Goyal and his son Nivaan Goyal flew to Doha and gave a presentation to Qatar Airways global CEO Akbar Al Baker, said a fourth person close to the development.

Etihad’s decision was conveyed by its CEO Tony Douglas to SBI chief Rajnish Kumar in a meeting on Monday. In response to a query from ET, a spokesman for the Gulf carrier said: “As a minority shareholder, Etihad is working closely with Indian lenders, the company and key stakeholders to facilitate a solution for Jet Airways.” He didn’t elaborate.

HUNT FOR NEW PARTNER

Jet did not respond to emailed queries till the time of going to press.

The development comes days after Jet’s lenders told Etihad it could exit if didn’t agree to conditions in the resolution plan, which was reported by ET on March 18. Key among the conditions was an immediate infusion of Rs 750 crore in Jet by Etihad, which the Gulf carrier didn’t agree to. On the other hand, Etihad’s conditions also weren’t met by the lenders and Jet — the Gulf airline had said it could exit at a price of Rs 150. Etihad’s owners, the royal family of Abu Dhabi, have been jittery for a while about the uncertainty in talks.

The development may mean the beginning of an endgame for Jet, which is facing its worst financial crisis in its 25-year-old existence. The airline has defaulted on loan repayments, grounded a majority of its planes, delayed payments to most vendors including aircraft leasing companies and delayed salaries. In a filing to the BSE, the airline said it is late in a bond interest payment because of liquidity constraints.

Losing Etihad would mean Jet would have to look for a new partner which may mean another round of talks. Meanwhile, Jet which defaulted on loans in December has 15 days before it is liable to be referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code. To be sure, it has repaid some lenders and made its account current with them. But the airline, which has been constantly cancelling flights, will be weighed down by customer refunds.

Jet is said to have sent feelers to other potential investors including Etihad’s Doha-based rival Qatar Airways. A senior executive at Qatar, however, said that the airline was not interested in investing in Jet.

Sources have also said the National Investment and Infrastructure Fund, which was supposed to come in as a new partner, hasn’t been happy with Etihad’s reluctance.

In the absence of a strategic investor, lenders on their own may be unable to turn around Jet.

Etihad had in 2013 bought 24% stake in Jet for $379 million, giving the cashstrapped airline a fresh lease of life. This was part of Etihad’s strategy to invest in airlines and make them part of its global plan of aggressive growth in the global skies. The strategy proved to be costly and loss-inducing in several cases. Etihad has incurred a combined loss of close to $3 billion in 2017 and 2018. In a recent interview to the International Air Transport Association, CEO Douglas said expanding primarily through equity alliances “is a strategy we do not intend to repeat”, although he named Alitalia and Air Berlin and not Jet as cases which did not work for it.

DRAFT MOU

According to the draft memorandum of understanding (MoU), which constitutes the fund infusion plan, Jet’s lenders are supposed to convert debt into 114 million shares. The airline has already enhanced its share capital and will, in the next step, issue fresh shares via a rights issue.

According to the MoU, Etihad was supposed to infuse Rs 1,600-1,900 crore for a stake of 24.9%, just below the 25% threshold that triggers an open offer.

Lenders will infuse another Rs 1,000 crore and take a 29.5% stake in Jet. About Rs 450 crore that the carrier owes the founder will be converted into equity. Goyal, who has already infused Rs 250 crore, will end up with a shareholding of about 17.1% and not more than 22%.

On an immediate basis, lenders will give Rs 750 crore to Jet. A similar amount needs to be raised by Etihad either by itself or a lender. Etihad has refused to comply with this condition.

The lenders have, according to sources, also refused to accept Etihad’s condition that it should have the right of first refusal if any of them decides to exit Jet.

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