Etihad conditions set speed bumps for debt-laden Jet's resolution plan

Time is running out for the troubled Naresh Goyal-promoted private airline Jet Airways as the interim funding plans that could validate the debt resolution plan has hit fresh turbulence.

Jet's strategic partner Etihad Airways reportedly set stiff conditions for backing the resolution for converting debt into equity at an extraordinary general meeting last week. The indifference of Abu Dhabi-based United Arab Emirates (UAE) national carrier that holds 24 percent stake in the debt-laden Indian carrier could delay a deal to bail out Jet, cobbled together by a State Bank of India (SBI)-led consortium of lenders. Further delay in implementing the debt resolution plan will push Jet further into the problem with its creditors and affect its daily operations.

A final decision on a proposal from the consortium to lend another Rs 500-crore to the ailing airline is pending, according to media reports. The lenders may also seek additional securities, including share pledges or guarantees from promoters for sanctioning the loan, media reports say.

On February 21, the airline's shareholders approved five enabling resolutions to convert its debt into equity, appoint lenders' nominees on the board, and increase the authorised share capital of the company, according to a report in Business Standard.

The EGM passed the resolution with the support of about 97 percent of the shareholders though Etihad abstained from voting, the website said citing unnamed sources. According to them, Etihad is waiting for clarity on the funding from the SBI and the state-owned National Investment and Infrastructure Fund (NIIF). The Gulf carrier has been pushing for SBI and the NIIF to own 51 percent by investing an additional Rs 2,200 crore.

Etihad's demand for a right of first refusal (RoFR) after one year is apparently a sticking point with the SBI for resolving the issue. The Gulf-based carrier also wants the SBI to get a confirmation from market regulator Securities and Exchange Board of India (Sebi) that the right, if exercised, would not trigger the mandatory open offer, the report says. However, Sebi norms make it mandatory for investors to make an open offer to shareholders if their shareholding goes beyond a threshold. According to reports, Etihad will bring in further capital under the bank-led resolution plan that seeks to bridge an Rs 8,500-crore gap.

However, lenders' sources said they would be meeting shortly for converting part debt into equity and other elements of the resolution plan.

Sources with direct knowledge of the negotiations have rejected reports that the SBI is planning to move insolvency proceedings against Jet before the National Company Law Tribunal as the airline's daily operations get more and more hampered, imperilling its financial and operational viability.

The Jet pilots have threatened to keep off the cockpits if they are not paid before March 1, further complicating the matter for the beleaguered airline, according to a report.