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Jet Airways: Why the airline’s aggrieved lenders aren’t excited about the Kalrock deal

There isn’t much for lenders in the Kalrock-Jet Airways deal. Over 90 per cent of the money is gone. There is no clarity on what lies ahead for Jet under the consortium. Still, it is better than a no-deal, total write-off, bankers say.

October 20, 2020 / 02:37 PM IST
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Beleaguered Jet Airways, which hasn’t seen the skies since April, 17, 2019, has finally got a winning bidder in the Kalrock-led consortium. But lenders, who over the years put over Rs 8,000 crore into the dead airline and spent many sleepless nights over their money, aren’t really excited.

There was a sense of despondency among Jet’s lenders when Moneycontrol reached out to some of them seeking a response on the deal. The lenders have agreed to take a 90 per cent haircut to make this deal happen. This means, if Kalrock keeps its promise, banks will get something in the vicinity of Rs 800 crore and maybe some equity.

They didn’t do it wholeheartedly, but out of desperation to salvage at least something from an otherwise dead investment. “No, there was no other choice,” said a senior banker, who is among the largest lenders to Jet and played a crucial rule throughout the process. “The only upside is equity — if at all,” said the banker. He didn’t want to be named.

Jet Airways shares are trading at Rs 44.30 apiece. That’s a pittance for lenders, considering what is at stake.  In 2019, when the airline’s shareholders approved a plan to convert debt into equity, the shares were trading at over Rs 200 apiece.

“Ten per cent for lenders is very little; it almost means nothing for lenders. Still, it is better than a write-off. There is no certainty on whether Jet will fly again and whether the new promoters will be able to bring in more capital,” said Anand Dama, analyst at Emkay Global.


According to another senior banking industry official, the Kalrock deal doesn’t offer any advantage to the banks. “Banks would have got this much (10 per cent) from the sale of the aircraft,” the banker said. He, too, declined to be named.

Jet airways owed around Rs 40,000 crore to various creditors in the form of claims. Financial creditors alone claim Rs 11,344 crore from Jet. Among the banks, State Bank of India has the largest exposure of less than Rs 2,000 crore, followed by Yes Bank (around Rs 1,000 crore), Punjab National Bank (less than Rs 900 crore) and a few other banks, including ICICI Bank, Indian Overseas Bank and Axis Bank.

The exact outstanding exposure of these banks to Jet isn’t immediately available as this would also include the accrued interest amount.

 Banks have booked losses already

Most of the banks have already made a 100 percent provision for their loans to Jet. Provision refers to the amount banks need to set aside to cover the losses from a loan account. When an account turns into an NPA, the provisions required will equal the full loan amount.

“Most banks have made full provisions for this account, which means they have already taken a huge hit. I’m not hopeful of any meaningful recovery from Jet even with this deal. I don’t think the banks can recover much,” said Siddharth Purohit, analyst at SMC Global securities.

The only way banks can get something out of the Jet deal is through the sale of assets and other collateral, including its licence and real estate assets. But, the value of this collateral, even in the event of monetisation, will be insignificant considering what is at stake, bankers said.

 Will Jet Airways fly again?

The bankers to Jet airways aren’t very hopeful of a turn-around in the foreseeable future despite the Kalrock bid. The successful bidders will need to bring in a significant amount of capital to honour the claims of other creditors and get the airline back in the skies.

Aviation isn’t an easy business even for those who have specialised in it for decades. And the Kalrock consortium, including Kalrock Capital and Murari Lal Jalan, does not have any experience in running an airline. This worries the lenders with respect to the future of the airline. Kalrock is into investments and advisory services in financial, marketing, managerial and legal matters, while Jalan is a UAE-based investor who bets on different asset classes.

There are still hurdles in the Kalrock-Jet Airways deal. The committee of creditors (CoC) has approved the deal, which  will now go to the NCLT for approval and later to the government for final clearance.

“Will the plan materialise?” wondered an analyst, requesting anonymity since he no longer tracks Jet Airways. “The new owners need to bring in a huge amount of fresh capital to get the airline back in operation. That is a long way from this point,” said the analyst.

Lessons from the past  

Lenders have learned hard lessons from earlier cases that are in the bankruptcy court. “If you look at cases like Amek Auto, it is obvious that banks do not have much of a chance when it comes to recovery,” said Purohit of SMC Global. Bankers took a haircut of around 80 per cent in the Amtek deal.

Even before the NCLT came into existence, banks had tough lessons from the Kingfisher account. Around Rs 9,000 crore lent to the failed airline owned by Vijay Mallya, the flamboyant one-time poster boy of Indian civil aviation, has disappeared without a trace. Mallya, who flew to the UK in 2016, hasn’t returned since then and is fighting an extradition battle with Indian government.

In the Kingfisher case, banks even bet on Mallya’s personal guarantee to put money on the table. All the loans to Kingfisher by an SBI-led consortium turned NPAs in 2012.

 A ray of hope…

Despite this dismal history, banks see the Kalrock consortium development as progress in the Jet Airways case. “You get something and that’s better than nothing,” said one of the bankers quoted earlier. “There is a possibility that things will change when the new management takes over and if the company gets back to operations. But all these are only possibilities at this stage,” the banker said.

But he said this in a tone bereft of hope; there was no excitement.
Dinesh Unnikrishnan
first published: Oct 20, 2020 02:24 pm
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