As SC strikes down RBI circular, nine banks to own Jet Airways after debt-equity conversion

As SC strikes down RBI circular, nine banks to own Jet Airways after debt-equity conversion
As SC strikes down RBI circular, nine banks to own Jet Airways after debt-equity conversion

HYDERABAD: With the Supreme Court (SC) striking down the controversial February, 12 circulars, SBI, the lead banker for troubled Jet Airways, has gone back to the drawing board to devise a plan on converting the air carrier’s debt into equity.

It’s likely that the government and RBI will step in and give directions allowing SBI to proceed with the previously approved resolution plan. According to bankers, RBI, after consultation with the government, can direct banks on implementing a time-bound resolution plan for specific accounts such as Jet Airways.

“The lead banker is preparing a paper on that, and we will know about it (about converting debt-to-equity)…It’s difficult to crystalize anything right now. Because if you recall, two banks said they’ll fund it (interim funding), then the consortium said the SC circular has been scrapped, that has also given a new dimension,” a senior banker told Express. He added that SBI will likely present the details to consortium lenders before the bidding ends on April, 10.

“The SC judgement doesn’t prohibit one-on-one conversions (debt to equity in specific accounts). But we have to follow some compliances,” said another banker.

As per the bank-led restructuring plan, approved by Jet’s shareholder’s last month, lenders were to receive 11.4 lakh shares after converting debt for Rs 1 in lieu of 51 per cent stake in the carrier.

In the absence of the circular, banks must reprice shares in line with Sebi regulations that insist on six months average price.

This, however, could be negated if the government gives directions to the central bank to exercise its powers under Section 35AA of the amended Banking Regulation Act.

Meanwhile, nine banks including public and private lenders will stake ownership claim in the airline if the debt-to-equity conversion plan succeeds.

As per the Expression of Interest, published Monday, the consortium comprises SBI, Punjab National Bank, IDBI Bank, Syndicate Bank, Canara Bank, ICICI Bank, Yes Bank, Indian Overseas Bank and Bank of India.

“As per the norms, only secured creditors can get into a consortium. Operational creditors who have not joined the wills and means of finance, something which is not either working capital or a term loan, and which is secure, aren’t part of the consortium,” he added.

The proposed additional funding to keep the airline afloat will be borne by these nine lenders.

“Nothing was approved. There are various possibilities and calculations regarding working capital gaps to get some kind of visibility and sustainability of the airline. We haven’t chosen a number,” he explained.

Banks were to own 51 per cent stake in the airline, while promoter Naresh Goyal and partner Etihad Airways were to hold 24 per cent stake in the airline.

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