Uncertainty looms over Jet Airways’ revival, bidders ask lender to take up to 80% haircut

New Delhi: With Jet Airways announcing temporary shutdown, now uncertainty looms over the revival of the cash-strapped airline. According to a report in the Economic Times, bidders are asking lenders to take an upto-80% haircut on their Rs 8,500 crore loan to the now-grounded carrier. Potential investors have also criticised bank’s reluctance to release emergency loans to sustain operations.

“The investors are ready to provide funds. However, the lenders have made it overly challenging for any bid to work in the time frame required,” the business daily quoted a person close to the development as saying.

“The lack of interim funding has forced Jet to shut operations. The lenders see this as an opportunity to expedite the sale process. But this does not allow time for adequate due diligence,” he added.

Worth mentioning here is the lenders’ consortium led by State Bank of India, has shortlisted Etihad Airways, National Investment and Infrastructure Fund (NIIF), TPG Capital and IndiGo Partners as the qualified bidders. All of them have to submit binding bids by May 10.

Other than the Rs 8,500 crore debt to banks, Jet also owes around Rs 3,500 crore to lessors and vendors. Potential bidders have said that they would take only 20% of the airline’s debt.

The ET report citing a person close to the development said lenders should be happy taking a 60-80% haircut rather than foregoing the entire amount as valuation of the cash-strapped airline is falling every single day.

Meanwhile, lenders have said they want to rework all the lease and engineering contracts of Jet and bring down lease rentals by 50%. They also plan to demand a significant cut in maintenance reserves, the amount an airline parks with lessors.

Even after taking into account all the cuts, Jet will need up to Rs 20,000 crore over the next three years including funding towards estimated losses, dues and investments in improving operations.

According to the business daily, Etihad wants to retain its stake at 24%. But the bid documents allow for a consortium of bidders – any grouping that Etihad forms with NIIF and/or TPG and Indigo Partners – which would breach the 25% shareholding limit that triggers an open offer for another 20% stake. Etihad has said it doesn’t want to be part of an open offer as that “may be used an exit strategy by minority investors” instead of fetching funds for the airline. NIIF doesn’t want its stake to go beyond 20%, said a person in the know.
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