Shares of Jet Airways (India) soared 24% in two days in a market which otherwise remained weak. It has surged 19 per cent to Rs 301 on Monday, gaining 24 per cent in past two trading sessions on the National Stock Exchange (NSE), on reports that:
– A forensic audit by consulting firm EY did not show any adverse findings in Jet Airways,
– Lenders to Jet Airways are preparing to pick a substantial stake and restructure the debt,
– Lenders to bail out debt-laden Jet Airways,
– Founder and chairman Naresh Goyal was likely to step down from the company’s board and give up majority control, and
– Etihad may infuse more capital into Jet and raise its stake
The Nifty 50 was down 0.52 per cent at 10,738 points at 03:15 pm.
The trading volumes soared more than four-fold. A combined 35.53 million equity shares changed hands on the NSE and BSE.
On clarification on news report, Jet Airways (India) clarified that there is no discussion in its Board which would require disclosure under SEBI norms.
In an attempt to save the debt-laden airline, Jet Airways was likely to finalise a resolution plan with its lenders soon and that Jet Airways’ promoter and founder Naresh Goyal would trim his 51 per cent stake to 20-25 per cent and agree to voting rights on his stake being capped at 10 per cent. Also, the bankers have discussed in detail the financial state of the airline and how loans of over Rs 8,000 crore could be recast. They are aware that Goyal will cede control of the airline, though there could be an arrangement by which he may continue his association with the airline in a non-executive capacity. His son Nivaan, who is presently an executive in Jet, may be inducted into the board. SBI could possibly then consider converting its debt to equity in Jet.
Etihad Airways PJSC may gain effective control of Jet Airways (India) Ltd, if lenders approve the resolution plan for the cash-strapped Jet Airways, India’s No.2 airline.
For past several months, Jet Airways has been seeking funds from investors including minority shareholders. This resolution plan could see Etihad Airways raise its stake from the current 24%, and Naresh Goyal step down from the Jet’s board who founded Jet more than two and a half decades ago.
Since the financial situation of Jet Airways is precarious, the bankers don’t expect Naresh Goyal to put in additional funds and are banking on Etihad to bail the airline out. Etihad has agreed to increase its stake in Jet Airways and will bring in fresh capital to the company. Etihad is also in talks with several foreign lenders to refinance a large portion of Jet Airways’ rupee and dollar debt which are heading for maturity in the next few quarters. Etihad’s stake acquisition is, however, subject the condition that Goyal relinquish his control by capping some of his promoter rights.
The Abu Dhabi-based carrier, Etihad, sincerely wanted its board representation in Jet Airways to go up. A potential control of Jet Airways by Etihad will allow it to make a deeper foothold in the India’s civil aviation sector which is universally viewed as the world’s fastest growing civil aviation market. Etihad, or any other willful investor, can then make full use of Jet Airways’ ‘Brand Value’ – the biggest and the only gain which Jet Airways has attained in 25 years amid a mountain of debts and losses. Etihad may well utilise Jet’s network in India and overseas while also exploring more synergies for other aeronautical operations in engineering, training or research.
Gaining control of Jet Airways by Etihad, owned by the Abu Dhabi government, is also expected to make it easier for Jet Airways to raise debt locally as well as from overseas.
Etihad can also exploit Jet Airways position as one of the largest international airlines from South Asia to get more travellers flying to the West through its hub in Abu Dhabi.
Etihad can do it, but, unfortunately its own management could not manage Jet Airways.
Observers feel that Goyal should have taken this decision to give up operational control of Jet much earlier. Such a panic-like situation could then have been avoided. The transfer of management and ownership are mere formalities which can be firmed up very soon in view of the FDI Laws, under which foreign carriers can own up to 49% stake in a domestic airline. The rules also stipulate that management control of a domestic airline should remain with an Indian entity.
There are indeed various other options and ways to achieve what Jet’s strategic partner Etihad wants.