Jet Airways seeks fresh ₹5,000 crore loan to pay overseas debt

Mumbai: Cash-strapped Jet Airways (India) Ltd has approached a consortium of lenders led by the State Bank of India (SBI) to raise ₹ 5,000 crore in order to pay off part of its foreign debt, two people aware of the development said.

They added that the airline has offered cash flows from credit card receivables as collateral to secure fresh loans.

Jet is seeking fresh loans to repay foreign lenders to whom six of its aircraft are pledged, the people said on condition of anonymity. “Part of the loan is also to help it tide over the current liquidity crunch,” this person said.

The person added that top Jet Airways officials have been meeting individual banks and outlining their plan.

A Jet Airways spokesperson said the airline has been evaluating various funding options to meet its liquidity requirements on priority. “We will not be able to comment on any specific meetings or its proceedings,” the spokesperson added.

Jet Airways’ proposal offers to give the lenders charge of its credit card receivables, which would be deposited in an escrow account, the people cited before said. Credit card receivables are amounts due and payable or which would be due in the future to Jet Airways for purchases of services from the airline.

Also called a merchant cash advance, credit card receivables financing occurs when lenders purchase a percentage of a business’ future credit card sales at a discounted rate. The lenders advance a lump sum to the business, which is then repaid by extracting a specific percentage from credit card sales on a daily basis.

Apart from credit card payments, airlines’ cash receivables typically comprise remittances from third-party agents as well as from specially-designated clearing houses run by industry bodies such as the International Air Transport Association (IATA).

According to an agreement between Jet Airways and SBI Capital Markets (SBI Caps) on 9 April, reviewed by Mint, the airline had earlier approached lenders for loans of ₹ 1,500 crore for “business promotion and other operative expenses”.

“At the request of the borrower, the additional term lenders agreed to grant certain additional term loan facilities to the extent of ₹ 900 crore,” the agreement said. While SBI, Canara Bank and ICICI Bank had agreed to lend ₹ 200 crore each, Yes Bank agreed on a sum of ₹ 300 crore, it added.

In an interview, SBI chairman Rajnish Kumar on Tuesday said the bank had not received any formal proposal from Jet Airways for fresh loans. The two unidentified people cited before said the proposal had been discussed with bankers but a term sheet for a loan had not been signed.

An email sent to SBI did not elicit any response.

Mint reported on Monday that Jet Airways (India) has written to a consortium of overseas lenders, seeking a waiver of a loan covenant on its existing debt facility of about $185 million, citing two people directly aware of the development. The move is part of efforts by the embattled carrier, controlled by Naresh Goyal, to avoid a default on its loan repayment obligation. The loan was arranged by Dubai-based Mashreq Bank. Jet Airways told the lenders that it would not be able to meet the minimum $50 million profit condition for FY19, as stipulated in the loan covenant.

The airline reported a loss of ₹ 768 crore in FY18 on the back of ₹ 23,287 crore in revenue in FY18, with interest outgo at ₹ 843 crore in the same period. Its gross debt stood at ₹ 9,425 crore at the end of March, down 16% from a year earlier, according to Bloomberg.

A senior State Bank of India official told Mint on Saturday that while Jet Airways is considered a standard account and not a special mention account (SMA1 or SMA2), it has been placed on a watch list. The official said SBI is closely monitoring Jet Airways’ repayment schedules. SBI, one of Jet Airways’ top lenders, has an exposure of around ₹ 2,000 crore in the airline, a large part of it in the form of non-fund exposures through guarantees.

The Reserve Bank of India classifies loans with overdues of 31-60 days as SMA1 and the ones with repayment overdues between 61-90 days as SMA2. Both SMA1 and SMA2 fall under the standard category of loans. It is only after a loan is due beyond 90 days that it is termed non-performing and substandard.

Rhik Kundu contributed to this story.