Cash-strapped Jet Airways has pledged fixed deposits worth Rs 1,500 crore with various banks to borrow Rs 225 crore from State Bank of India (SBI), Mint reported.
The airline could avail more funds from SBI with these FDs as security. It did not redeem the FDs because borrowing against them would help the airline earn a higher interest than what it has to pay SBI, a source told the newspaper.
These funds will be used for its core business operations (i.e. cost of flying, parking and staff salaries) to avoid further grounding of its fleet.
As many as 23 planes from Jet Airways' fleet have been grounded since February 8 due to non-payment of rent. The carrier has also been struggling to pay the salaries of its pilots and employees. It saw losses of over Rs 1,000 crore in each of the last three quarters, a trend which is expected to continue in the March quarter.
"Banks were reluctant to sanction a term loan to Jet Airways without gaining exclusive rights to the airline’s interest-yielding cash deposits, appreciating assets or equity share pledges," the source cited above said, adding: "Finally, SBI agreed to disburse a term loan after Jet Airways allowed the bank to pledge all its FDs with exclusive rights. The airline may raise additional capital from banks and stakeholders as part of the overall resolution plan."
The report said that banks look for secured assets that earn returns in cases where they are unsure whether the borrower has other avenues to repay the loan. Borrowing against FDs is usually seen as the last option for companies facing liquidity issues, and Jet Airways' negative net worth and credit rating cuts have left it with no other option. The latest loan documents suggest that it has given 'first and exclusive' rights on all its FDs to SBI for the loan.
This term loan was extended by SBI in January at 6.25 percent. Jet Airways will have to repay close to Rs 250 crore by April 29. As of December 31, 2018, Jet's total debt was pegged at Rs 9,610.16 crore. Ratings agency ICRA downgraded Jet Airways' credit ratings in September, October, December 2018 and January.
The loan agreement gives SBI, the biggest lender to Jet Airways, the right to take away benefits of the FDs and their accrued interest incomes if Jet does not repay the loan.
On February 23, the board of Jet Airways approved the conversion of its debt into equity, and as a result, founder and Chairman Naresh Goyal's stake in the carrier fell from 51 percent to below 20 percent. On March 1, Goyal agreed to step down from the board and gave up his directorial powers.