MUMBAI: Lenders to Jet Airways, which defaulted on loan obligations last week, have three options to recover their dues, bankers have told TOI even as they are unlikely to extend any additional credit to India’s second-largest carrier.
The lenders, led by SBI, will not release cash until they have a look at the forensic audit report by EY on Jet’s business viability. Jet, which is in loss, is under pressure to raise funds before it is classified as a non-performing asset (NPA).
The first option is for Jet’s founder-chairman Naresh Goyal to sell stake in the carrier before lenders initiate bankruptcy proceedings against it. Goyal reportedly has been in talks with his Abu Dhabi partner Etihad Airways for funds, but nothing has come of it. Goyal, along with his wife, owns 51% in Jet, while Etihad holds 24%. The Tata Group has also explored a possible investment in Jet, but there has been no progress on that front too.
The second option for lenders is to initiate insolvency proceedings against Jet once the loan becomes an NPA. If a company doesn’t repay loans within 90 days, then it is categorised as an NPA, as under current rules. Jet has repayment obligations of Rs 6,500 crore extending till March 2021, while its total debt stands at Rs 8,000 crore.
The third option is to restructure the loans in agreement with the lenders. This will require Goyal to sell assets and cut costs. It will also require conversion of debt into equity as cash flows might not be enough to service the loans. However, actual business viability will be known only after EY submits its forensic report, the lenders said. Currently, to ease its cash flow, Jet has been offering up to 50% discount on tickets to certain destinations for travel in the next few months.
An email to Jet went unanswered.
There are several challenges to loan restructuring. In the wake of the Nirav Modi-led fraud at Punjab National Bank and the Rotomac fraud at Bank of Baroda, department of financial services secretary Rajiv Kumar had asked banks to conduct forensic audits in case of defaults of more than Rs 50 crore. The forensic audit at Jet by EY comes under the same directive.
The RBI has also come out with guidelines for resolution of stressed assets. Under this, once a company defaults on its loan, lenders have to get together and agree on a resolution plan for the residual debt. This resolution plan has to be rated as viable by an independent credit rating agency before it can be approved. Bankers said that given the trouble that they have landed into with Kingfisher Airlines, no fresh credit would be approved without completion of this process.