Jet Airways, whose wings have been flailing for a long time, is now a quasi-nationalised entity with banks led by State Bank of India (SBI) getting to control 50.5 percent of its equity. Some 114 million shares were issued to them a couple of weeks ago at a deep-discount price of Re 1 per share as mandated by the Reserve Bank of India (RBI) norms for conversion of loans into equity when the defaulting borrower’s net worth is in the negative. Naresh Goyal, the biological parent of Jet, is now a minority shareholder with about 20 percent stake. Etihad Airways, the Abu Dhabi based strategic partner of Jet retain its 24 percent pre-dilution stake in Jet but is ready to pump in more when the market price of the shares nosedive to Rs 150 per share. Jet has an accumulated loss of about Rs 920 crore.
While many in the know have questioned the wisdom of the consortium of banks led by SBI taking up the reins of an airline, the banks’ argument is they are only interim Popes and would soon find a suitor, may be Etihad itself, to which the shares would be offloaded. Critics aver that this is a pipe dream and the SBI-led consortium has jumped from fire to frying pan by converting a portion of their debts (undisclosed) into equity. Airlines’ fortunes have been plummeting in India thanks to fierce competition and mounting fuel bills.
Meanwhile, employees of Jet Airways have become emboldened to ask SBI to release at least one month of their salary out of six months’ salary reportedly in arrears. And why not? SBI and PNB---the two of the equity-for-debt enthusiasts who have gone overboard to the extent of offering to buyout the other banks’ loans to Jet—have after all sent out the signal that they are now not the snapping-at-the-heels lenders but benign, caring investors as well. This dual role—lender-cum-investor—has made SBI in the public eye the savior of the beleaguered Jet Airways, come what may. In other words, the public perception is far from going for the jugular to recover their dues, banks would handle Jet Airways with kid-gloves so that it can be nursed back to health and suitors don’t spurn it. Therefore, the first step in this new worldview is keeping the employees happy.
The employees see in SBI a new parent now that Naresh Goyal has been banished from the corner office. It is like a child taking liberties with its father. If my organisation is unable to pay my salary, isn’t it your duty to pay up as a parent, seems to be their suave argument. And with elections in high gear, the government might again succumb to their emotional blackmail and ask SBI to give further loans so as to enable Jet Airways pay off some of the salary arrears.
Remember the SBI-led consortium did not want to throw good money after bad which is why it embraced the conversion route but then conversion has morphed it into a parental role from which it cannot shy away. Banks have truly painted themselves into a corner. Others might follow suit. Suppliers like IOC might not lag behind. Lessors of planes might also put similar pressure. Banks may not be able to parry them off because unless Jet Airways takes wings again there is no hope of attracting suitors and ultimately unloading the equity stakes besides recovering the un-converted portion of the loans.
Banks would have been better off had Jet Airways gone to National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC). It would not have been their lot to find a suitor for the airline. It would not have been the SBI’s lot to pump in money now that the mantlelof parent is upon it. Controlling stake in a losing company is not something to be coveted. But the banks have committed this cardinal sin. In the event, while their equity investments would earn them nothing for a long time, their loan exposure is bound to mount. Dual role—lender cum investor—is a recipe for disaster.
(The author is a senior columnist and tweets @smurlidharan)
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Updated Date: Apr 29, 2019 14:24:32 IST