Jet Air­ways de­tails ac­tion plan to re­as­sure jit­tery over­seas lenders

ON A WING AND A PRAYER

Mint Asia ST - - News - BRY HIK KU NDU & M A LVI K A J O S H I

ash-strapped Jet Air­ways (In­dia) Ltd has in­formed lenders that it will raise about ₹ 3,500 crore over the next six months through a stake sale in its loy­alty pro­gramme and in­fu­sion of fresh funds into the com­pany.

The air­line has also told lenders it will shave off costs by as much as ₹ 2,000 crore over the next two years. This will, how­ever, be sub­ject to strength­en­ing of the ru­pee against the dol­lar and a fall in crude oil prices, which, an­a­lysts said, were un­likely in the near term.

Re­spond­ing to the con­cerns raised by its over­seas lenders, Jet Air­ways’ chief ex­ec­u­tive, Vi­nay Dube, in a let­ter said that in case the air­line failed to in­fuse funds through the stake sale in Jet­priv­i­lege and eq­uity in­fu­sion by 31 March, it would make ef­forts to ob­tain a bridge loan from in­vestors, a per­son with di­rect knowl­edge of the mat­ter said, re­quest­ing anonymity.

The air­line has also promised to main­tain a min­i­mum rev­enue thresh­old of $700 mil­lion per quar­ter, apart from opt­ing for “man­power ra­tio­nal­i­sa­tion” and “pro­duc­tiv­ity im­prove­ment” mea­sures, Dube wrote in the mail, said the per­son cited above.

Dube was al­lay­ing con­cerns of a group of lenders led by Mashreq Bank PSC, which had ex­pressed its in­tent to ex­pe­dite the re­pay­ment of loans worth about $185 mil­lion, amid the wors­en­ing fi­nan­cial con­di­tion of Jet

CAir­ways. A let­ter on be­half of the lenders was sent by Dubai-based Mashreq Bank to Jet Air­ways on Mon­day, seek­ing a de­tailed re­sponse by 24 Septem­ber.

Dube has also sought a waiver of the profit covenant on its ex­ist­ing bank fa­cil­ity, cit­ing ris­ing crude oil prices and a de­pre­ci­at­ing ru­pee.

He em­pha­sized that the air­line would not be able to main­tain a profit of $100 mil­lion in FY19, as stip­u­lated in the loan covenant, since the profit covenant was premised on Brent at $45 a bar­rel and a ru­pee ex­change rate at ₹ 66.7 to a dol­lar, which are not the case any more.

Jet Air­ways in­formed the lenders that wors­en­ing macroe­co­nomic con­di­tions were be­yond the com­pany’s con­trol and the prof­itabil­ity tar­gets, as per the covenant with the lenders, are likely to be missed, the per­son cited ear­lier said.

Covenants are con­di­tions put in place by lenders to pro­tect them­selves from de­faults by bor­row­ers. Lenders may re­call a loan, seize as­sets or slap penal­ties in case the bor­rower vi­o­lates a loan covenant.

Sep­a­rate emails seek­ing com­ments sent to Jet Air­ways and Mashreq last week re­mained unan­swered till press time.

To be sure, any de­cline in crude oil prices is un­likely, given shrink­ing sup­plies from Iran and Venezuela and a slow­down of growth in US shale oil pro­duc­tion. Prospects of the ru­pee strength­en­ing against the dol­lar are dim.

An­a­lysts at Ko­tak In­sti­tu­tional Eq­ui­ties, in a 26 Septem­ber re­port, said they ex­pect Brent crude at around $80 per bar­rel in the cur­rent fis­cal and mod­er­ate only from 2019-20 on­wards.

Dube told the lenders that Jet took a hit of ₹ 1,041 crore in the last two quar­ters due to ris­ing fuel prices and had to make a mark to mar­ket ad­just­ment of about ₹ 500 crore due to a de­pre­ci­at­ing ru­pee, said the per­son cited ear­lier.

“It will be dif­fi­cult for Jet Air­ways to gen­er­ate $700 mil­lion in rev­enue, a quar­ter, in the up­com­ing quar­ters, as July-septem­ber quar­ter is con­sid­ered a lean quar­ter for travel,” an an­a­lyst track­ing the avi­a­tion sec­tor said on con­di­tion of anonymity. “In the cur­rent sce­nario, the air­line can’t raise its fares sig­nif­i­cantly due to pric­ing pres­sures in the mar­ket.”

“Also, Jet Air­ways’ val­u­a­tion of JPPL (Jet­Priv­i­lege Pvt Ltd) at an en­ter­prise value of $1.3 bil­lion is on the higher side. I ex­pect Jet Air­ways to make about ₹ 2,000-2,500 crore by sell­ing its stake in JPPL,” the an­a­lyst added. Jet Air­ways owns 49.9% stake in JPPL while Eti­had holds 50.1%.

rhik.k@livemint.com

Dube told the lenders Jet won’t be able to main­tain a $100 mn profit for FY19, as stip­u­lated in the loan covenant AFP

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