Etihad Airways has set tough conditions for a bailout, including a bargain price, exemption from norms and summary exit of Naresh Goyal from operational responsibilities.
Etihad Airways has reportedly agreed to rescue Jet Airways, but in a bargain deal with tough conditions. The price Etihad is offering is Rs 150 per share, which is 49% lower than Jet’s closing share price on Tuesday at Rs 293.70. If its conditions are met, Etihad is also willing to make an upfront payment of US$ 35 million from Jet Privilege.
The announcement pummeled Jet’s shares, which fell by 7.5% after the report, their greatest intraday loss since December 10, 2018.
In a letter to the State Bank of India, Etihad CEO Tony Douglas presented the restructuring plan. Etihad wants exemption from the regulator on preference pricing and open offer guidelines to invest for a Jet bailout.
Etihad wants Naresh Goyal to step down from the board and also slash his stake to 22% from 51%. It wants Goyal’s status as Chairman Emeritus to also be redefined, and there should be no representation for him on the Board. Further, Goyal or his family and affiliates should have no right to represent the airline.
Etihad has also specified that the CEO and CFO must be named in the resolution plan, with final decisions to be taken by the reconstituted board. A reconstituted nomination and remuneration committee should be set up with representatives from the lenders and Etihad. Moreover, selection criteria for independent directors should be clearly defined.
Jet Airways is currently in a precarious position with an outstanding debt of around Rs 8,052 crore as of September 30, 2018. It immediately needs at least US$ 500 million till April to pay its dues. Banks have refused to offer any funds till additional equity is infused by current investors.
According to sources, Etihad is also in talks with lenders to refinance a large component of Jet Airway’s rupee and dollar debt which is maturing in the coming quarters. But foreign airlines are only allowed upto 49% stake in domestic carriers as per law.
Additionally, management has to remain with the Indian entity. If Etihad’s stake crosses 25% (it currently owns 24% stake), it will have to make an open offer to purchase 100% shares of Jet Airways. But due to the 49% rule, Etihad will have to divest the stake once again. A source comments, “This is not an ideal situation because the proceeds of the open offer will not come to company and will go to the shareholders instead.”
The other option is for lenders to convert a part of their debt to equity and then sell it to Etihad. This will bring down Etihad’s stake and then it can invest money to bring its stake to the current level.