Private equity firms Blackstone Group and TPG Capital are having second thoughts on purchasing Jet Privilege due to worries over Jet Airways' financial health
Mumbai: Private equity (PE) giants Blackstone Group LP and TPG Capital, which are eyeing a stake in Jet Privilege Pvt. Ltd, the loyalty programme of Jet Airways (India) Ltd, are having second thoughts due to worries over the airline’s financial health, said three people directly aware of the matter. Both PE firms have already offered indicative term sheets valuing Jet Privilege at close to $900 million, but they realize that the future of this business depends largely on how well Jet Airways runs its overall operations, the people cited above said on condition of anonymity.
They said while there is consensus on the terms of a potential deal, a binding offer may take more time depending on how things pan out in the weeks ahead.
Mint reported on 20 August that TPG and Blackstone were in the race to buy a significant stake in Jet Privilege.
“Both TPG and Blackstone are yet to take a final call on the investment, although they continue to remain engaged," said the first of the three persons cited earlier. “It is well acknowledged that the equity infusion via the stake sale in Jet Privilege, which is expected to fetch anywhere between $300 to $400 million is the surest way to shore up equity, but the PE firms are equally apprehensive whether an infusion will be good enough to see Jet Airways through the current turbulence."
Jet Airways incurred a fiscal first-quarter loss of ₹ 1,323 crore, excluding its units. It was the second straight quarterly loss for the carrier.
According to the latest available data, Jet Privilege posted a 30.5% rise in revenue to ₹ 509 crore in FY17. It had a net worth of ₹ 1,744 crore in end-March 2017, as per audited filings. Jet Privilege was incorporated in 2012 as a wholly-owned unit of Jet Airways, but was hived off as an independent entity in 2014 after Etihad Airways PJSC bought a 50.1% stake for $150 million valuing the firm at $300 million. Etihad’s investment in Jet Privilege was part of its overall $600 million investment in the airline announced in April 2013.
“Jet Airways on its part has told the PE firms that it expects its domestic lenders to release more funds once the equity infusion is made, which will address its working capital needs and stabilize the situation," the second person said. “This, however, is just an assumption as of now since the banks are yet to make a firm commitment in this regard."
And while the carrier continues to pin its hopes on the Jet Privilege stake sale, it has begun looking for short-term funding to meet its immediate liabilities. “Jet (Airways) is also trying to raise bridge loans from foreign lenders to manage its affairs till talks on the loyalty programme firm up," said the third person cited before.
A spokesperson for Jet Airways said the airline was “actively exploring all possible opportunities to turn around the business", as approved by its board on 27 August. The steps include cutting costs and monetizing Jet Privilege.
Blackstone and TPG did not respond to emailed queries.
A senior Jet Airways official, who declined to be named, said the airline had already indicated to stakeholders that it was open to external fund infusion to ensure its survival. The fresh funds could result in a change in the current shareholding structure, where promoter Naresh Goyal owns 51%, the official said.
Mint reported on 28 September that Jet Airways had informed lenders that it would raise about ₹ 3,500 crore over the next six months through a stake sale in its loyalty programme and infusion of fresh funds. The airline has also told lenders it would shave off costs by ₹ 2,000 crore over the next two years. This will, however, be subject to strengthening of the rupee against the dollar and a fall in crude oil prices, which, analysts said, were unlikely in the near term.