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Sun 28 Apr 2019 04:48 PM

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State Bank of India to seek more flexibility in finding Jet Airways solution

Etihad Airways is one of the four bidders currently in the fray to acquire stake/additional stake in the carrier

State Bank of India to seek more flexibility in finding Jet Airways solution

The State Bank of India (SBI)-led banking consortium is understood to be planning to approach NCLT (National Company Law Tribunal) for resolution for the troubled Indian airline Jet Airways under certain specified provisions of the Indian Companies Act.

A resolution under the Section 320-322 of the Companies Act is being initiated as this will provide wider flexibility to the banks to deal with the ongoing sale process of Jet Airways, a leading federal Government official said.

“The SBI-led creditors’ consortium to Jet is expected to approach NCLT soon with a new proposal under certain specified provisions of the Companies Act. The Companies Act provisions would give wider flexibility to the banks to negotiate sale of the airline with prospective buyer/s and also fasten the resolution process,” a top government official told Arabian Business.

The new proposal will be made under Companies Act 320 to 322 which will enable creditors, debtors and various stakeholders of the company to work out a scheme of arrangement on a range of issues related to the company's liability, capital, business restructuring, etc, which will be binding on them, the official said.

The official, however, said the banks will not approach NCLT on the Jet issue under the IBC (Insolvency and Bankruptcy Code) route, which is mainly a debt recovery process for creditors to a company, and is also a time-consuming process.

Valuation

Jet Airways, being a service sector company, may not attract much of a valuation, if banks opt to exercise the IBC route to find a buyer for Jet Airways, industry analysts said.

The SBI official spokesperson was not available for comment.

Abu Dhabi-based Etihad Airways, which hold 24 percent stake in Jet Airways, is one of the four bidders currently in the fray to acquire stake/additional stake in the carrier.

Private equity majors TPG Capital and Indigo Partners, and Indian sovereign wealth fund NIIF (National Investment and Infrastructure Fund) are the other firms which have submitted bids in response to SBI Capital inviting bids for acquiring up between 31 and 75 percent stake in Jet Airways.

As a precursor to approaching NCLT, the SBI-led bankers’ consortium is understood to have initiated discussions with vendors and other debtors and stakeholders of Jet Airways to arrive at a mutually agreeable scheme of arrangement.

Such a scheme of arrangement is also required to be adopted as a special resolution by majority of the shareholders of Jet Airways for NCLT to consider a proposal under the Companies Act, sources said.

Industry sources said the bankers’ consortium may have got some positive indication from the Reserve Bank of India on their proposal to convert debt into equity in order to take majority ownership of Jet Airways.

“Unless the creditor banks first acquire majority ownership of Jet Airways, getting such a special resolution passed at the company shareholders meet would be a difficult task,” an independent analyst on company affairs related issues told Arabian Business.

SBI-led banking consortium’s decision to acquire majority ownership in Jet through conversion of debt into equity, in line with RBI’s February 2018 circular on resolution on stressed assets, was put on hold, after Supreme Court of India’s recent order setting aside the central bank’s February circular.

Industry sources said SBI and other banks may have initiated the fresh move on approaching NCLT under the Companies Act, based on their initial round of talks with some of the bidders for the airline.

The flexibility offered by a resolution process based on the provisions under the Companies Act could help the banks to negotiate with the debtors and other stakeholders of Jet on issues such as how much haircut each category of creditors should take, whether or not some write down of the company’s capital base is required, business restructuring and other such issues.

A compromise agreement related to reduction in debt, capital base, etc will not only bring down the total liability of Jet Airways, estimated at over $1.2 billion, but will also provide more clarity on future obligations for prospective bidders, brightening the chances of a faster sale of the airline.

Alternatively, the flexibility through this route will also give options to split various assets/operations of Jet Airways and sell them separately to maximize the valuations.

For instance, Jet Airways slots for international operations, its slots for domestic operations, its parking rights at various airports or its brand could be separated and sold to different buyers, in the event of banks unable to find buyers for buying the airline as a single entity.

Significantly, senior executives of Jet Airways met top DGCA (Directorate General of Civil Aviation) officials on Thursday to request not to give away international flying slots of the airline to any other domestic airlines till the sale process of the company is completed.

DGCA has recently allowed some of the Indian airlines to use slots allotted to Jet Airways within India on a short-term basis, in order to maintain air traffic situation and check rising airfares.

Industry analysts said a resolution under the special provisions of the Companies Act will also predetermine the ratio at which proceeds from the asset sales will be distributed among secured creditors and operational creditors of Jet Airways in the worst case scenario of winding up of the airline.

Besides the four bidders who have been shortlisted by SBI Capital, there were reports about Tata group and Reliance Industries could also be entering the fray, if talks with the shortlisted bidders fail. According to reports in the Indian media, Reliance Indusries Ltd was said to be planning to join hands with Etihad to take over Jet.

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