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Banks thrust resolution plan, Jet Airways chairman Naresh Goyal yet to sign

Give Naresh Goyal 2-3 days to sign on resolution plan as Etihad circles

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The noose is tightening around Jet Airways promoter and chairman Naresh Goyal. Banks have put up a resolution plan for the cash-strapped Indian carrier and are pressuring Goyal to sign on it at the earliest if fresh lending is to be released, two sources familiar with the development said.

Setting up strictures like equity dilution and guarantors for any new loan, revenue distribution, repayment of existing facilities, bankers have asked Jet Airways management to sign on the resolution plan in the next few days.

"Jet Airways is yet to sign on the turnaround plan handed out to it by the lenders led by the State Bank of India (SBI). We have given the management another two to three days to sign on the plan. Otherwise, we are not going to release any fresh loan," a senior bank official said.

Bankers met Jet Airways officials on Wednesday to resolve the crisis as the carrier is rapidly running out of cash to continue with its operations.

The problem for Jet is that its equity partner Etihad is bargaining hard to raise its stake to 49% from 24% on low valuations. Etihad is also insisting on Goyal ceding management control in Jet Airways and the reconstitution of the Board. "They are also insisting that a new chief executive officer and chief financial officer should be brought in and Goyal and his family should not have any Board representation," said a banker who was part of the discussion on Wednesday.

Goyal on his part is finding it difficult to let go just yet. Bankers said Goyal is exploring other options as well, but valuations will be the key in most negotiations.

"Etihad has written to both banks and the government for certain relaxations as conditions for the airline to infuse more equity in the airline. The airline wants to be exempted from Securities and Exchange Board of India norms of making an open offer and preferential pricing guidelines which state that an average six months' price should be taken as a benchmark," a banker told the airline. Etihad wants controlling stake by buying the shares at Rs 140 to Rs 150, he said.

For a fruitful resolution on these terms, multiple agencies like Sebi and the government need to give their stamp of approval.

Meanwhile, Jet Airways shares closed 7.95% lower at Rs 271 a piece on BSE on news that Ethihad wants to increase stake at a 49% discount. Etihad also wants other concessions on the takeover guidelines, which the government and the Sebi will have to agree.

The Indian foreign direct investment regulations do not allow a foreign airline to have controlling power in a domestic airline, the ownership and management control has to be with the Indian promoters. Sebi takeover regulations also say that once the shareholding crosses 25% it will trigger an open offer and preferential offer has to have a fixed price range. Etihad according to bankers want a relaxation on all these conditions.

A Jet Airways spokesperson said, "We wish to clarify that the resolution plan is presently under active discussion amongst the stakeholders and the various options therein, being privileged and confidential, are yet to be crystallised and agreed to by the stakeholders in the best interests of the company."

The company executives said that the resolution plan involves various options on the debt-equity mix, proportion of equity infusion by the various stakeholders and the consequent change in the composition of the company's Board of directors.

Naresh Goyal, chairman and founder of Jet Airways, had met SBI chairman Rajnish Kumar at the bank's headquarters in Mumbai on January 8 where the banks had given the company a resolution plan which they had to agree upon. Once agreed lenders were ready to restructure the loan of the company.

But Goyal is stuck with valuation issues and also stringent conditions of Etihad that will see him be a minority shareholder in the company. "Etihad is looking at a 30% to 50% discount on the share price and also gaining management control, both of which are sore points that Goyal is yet to come to terms," said a banker. However, bankers said they do not have a view on who had management control as long as the operations are viable.

Jet Airways has a gross debt of Rs 8,411 crore at the end of September, 2018. Of this, the debt for its aircraft stood at Rs 1,851 crore. The net debt at September 30 stood at Rs 8,052 crore, a reduction of approximately Rs 30 crore over March 2018, and an increase of Rs 690 crore over June 2018. With a major portion of the debt being dollar-denominated, the depreciation of the rupee also impacted the company's closing debt balance by Rs 530 crore due to non-cash mark-to-market.

Bankers have made it clear to Jet management that they would recall the loans extended to the airline that is rapidly running out of cash if they don't have a credible repayment proposal at the earliest, the source said.

Recalling the loans would effectively mean that within a fixed date, Jet Airways would have to repay the debt to the banks or face liquidation. "The pressure is on Goyal to get things moving fast," the source said.

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