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Jet Airways lenders announce boarding call for investors, 75% stake on offer

SBI Capital Markets would be assisting and advising the lenders on the Jet Airways bid process. (Reuters)Premium
SBI Capital Markets would be assisting and advising the lenders on the Jet Airways bid process. (Reuters)

  • Air France-KLM, Delta Air Lines, Lufthansa AG and Blackstone Group said to be in fray to buy a stake in Jet Airways
  • On offer is a controlling interest, defined as 31.2-75% of the equity capital in Jet Airways to save it from bankruptcy

Mumbai: Bankers to debt-laden Jet Airways (India) Ltd, led by State Bank of India (SBI) have approached foreign airlines—including Air France-KLM, Delta Air Lines and Deutsche Lufthansa AG—and buyout firms such as Blackstone Group LP, offering them as much as 75% of the Indian airline in a bid to save it from bankruptcy, said a person directly aware of the developments.

According to bid documents prepared by the lenders, strategic bidders looking to invest in Jet Airways should have a minimum net worth of 1,000 crore or at least three years of experience in the aviation sector.

For financial investors, qualifying conditions are minimum assets under management (AUM) of 2,000 crore or at least 1,000 crore in committed funds for investment in Indian firms or assets, according to the expression of interest document that was made available to prospective bidders and reviewed by Mint. Potential bidders must submit their interest by Wednesday.

A clearer picture on the bidders would emerge only after the close of bidding, the person said, requesting anonymity.

On offer is a controlling interest, defined as 31.2-75% of the equity capital, in India’s oldest surviving airline outside government control, the document said.

Analysts said Jet Airways could generate robust investor interest.

“This is a good opportunity for a player seeking to enter the Indian aviation market or is already there and wants to grow inorganically," said Dhiraj Mathur, who was until recently a partner and leader of aerospace and defence at PwC India.

A successful transaction will, however, depend on the valuation of the asset and the complexity of the Jet Airways stake sale, said Hetal Gandhi, director at Crisil Research.

In case a consortium is bidding for Jet Airways, it needs to limit itself to three members, with shareholding of an individual member not exceeding 15%.

The consortium is also required to be represented by a lead member, who will take decisions on behalf of the grouping.

If the consortium is made up of companies, its net worth will be the weighted average of the net worth of the individual members.

On the other hand, if the bidding consortium comprises financial investors, minimum AUM of the consortium will be calculated as weighted average of individual members or committed funds available.

State-run firms, government agencies, government-promoted funds and quasi-sovereign wealth funds are also eligible to directly procure bidding documents and submit their bids, the bid document said.

KLM, Delta and Lufthansa did not respond to emailed queries.

Blackstone Group declined to comment.

Burdened by high operating costs and a huge debt, Jet Airways has been struggling to stay afloat. Its fleet has shrunk to 26 planes from 119 just before it defaulted on interest payments on 31 December. Since January, it hasn’t paid salaries to a section of its staff, including pilots and engineers, and lessors have taken possession of planes after the airline failed to pay rents.

Lenders, led by the State Bank of India, took control of Jet Airways in March and forced its founder Naresh Goyal to relinquish all roles in the carrier in order to resolve the crisis.

The lenders had in February decided to convert a portion of the airline’s debt into equity by agreeing to take a 50.5% stake in Jet Airways, nominate two members to its board and make a cash infusion of about 1,500 crore into the airline. But the lenders are yet to convert their debt into equity.

Industry executives Mint spoke with said some private equity investors and sovereign wealth funds might find Jet Airways an attractive investment. “With the founder stepping down from the board, the stake sale process of Jet Airways could attract interest from a lot of interested parties, including airlines, PE funds as well of sovereign wealth funds," said an executive with a rival airline, who didn’t want to be named.

“Whoever gets the airline will have serious work ahead to restore confidence in the brand, which has taken a beating in the past few months," the person added.

On 25 March, Naresh Goyal and his wife Anita stepped down from the airline’s board of directors. Naresh Goyal also ceased to be the chairman.

On Monday, Jet Airways shares rose 3.1% to 264.1 apiece on the BSE while the benchmark Sensex fell 0.42% to 38,700.53 points.

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