Mumbai: It’s very rare for a banker to force a promoter to step down, and take over the reins of a company to save it from the brink of a collapse. State Bank of India (SBI) chairman Rajnish Kumar has managed to do the unthinkable by convincing Naresh Goyal, the founder chairman of Jet Airways (India) Ltd, and his wife Anita Goyal to step down from the board of the airline.
For over five months, SBI-led lenders worked tirelessly to save the beleaguered airline.
On 14 February, Jet Airways announced a bailout plan under which lenders would convert 114 million fresh shares into equity, resulting in the lenders becoming majority shareholders.
Lenders had also promised to pump in ₹1,000 crore with the foreign partner, Etihad Airways PJSC, infusing another ₹1,600-1,900 crore.
However, Etihad put a spanner in the works by refusing to accept the restructuring plan and asking SBI to buy its entire 24% stake in Jet Airways.
But Kumar was clear that the lenders would not let the airline go bust. “We believe that it is in everybody’s interest that Jet Airways continues to fly," he said.
Naresh Goyal tried hard to delay the inevitable by refusing to cede control of the airline he founded 25 years ago. However, he finally gave in to Kumar and his team.
For Kumar and SBI, the memories of Kingfisher Airlines, the biggest aviation fiasco, were still fresh. In 2011, banks undertook a similar restructuring exercise in the case of Kingfisher by converting debt into equity. The defunct airline owes as much as ₹9,000 crore to banks, but they failed to recover these dues, resulting in the promoter Vijay Mallya fleeing the country. An extradition trial is underway in the UK to bring Mallya back to India.
“Rajnish Kumar has demonstrated business acumen and dexterity in leading the lenders towards the most appropriate bank-led resolution under the current circumstances. This demonstrates bankers can take the lead to find solutions for operating entities without allowing impairment of the asset and in the best interest of all stakeholders," said Sunil Mehta, chairman, Punjab National Bank. “This also shows that banks should start working when they see signs of financial weakness."
Reliance Communications Ltd was one such example where lenders delayed the restructuring plan, resulting in the unsecured creditor walking away with 50% of its dues under the bankruptcy process. The National Company Law Appellate Tribunal (NCLAT) said that the sale process turned out to be a failure, noting that the lenders had messed up the restructuring process.
With Jet Airways, Kumar and his team were clear that they had to move fast and save the banking system from another bad loan mess, especially at a time when resolutions and recoveries under the Insolvency and Bankruptcy Code (IBC) have been delayed.