HYDERABAD: Lenders and prospective buyers of grounded Jet Airways Ltd are at a crossroads.
About 11.4 lakh fresh shares are up for grabs, but the road is unclear. Interested bidders want a cut-price deal, but banks are battling hard to protect the asset value in order to recover dues later, if not now.
“It’s a matter of deal structuring. We don’t know yet if we (banks) will acquire and transfer shares to the buyer. Obviously, whoever is bidding does not want to buy from the market, because then Sebi’s Substantial Acquisition norms will kick in. We don’t know yet about the vehicle through which shares will be transferred,” a banker said.
As per Sebi norms, if a company acquires fresh shares aggregating 25 per cent stake -- this forms the equity capital, something Jet is in dire need of -- it has to make an open offer to acquire a minimum of 26 per cent stake at the same share price.
“Sebi made an exception for SpiceJet and ONGC, giving an open offer exemption. But such exceptions should be avoided. What’s the point in having regulations if you keep giving exemptions,” said Shriram Subramanian, founder, InGovern Research Service. Such exemption allows buyers to spend less to buy out a firm.
As on March 2019, promoter Naresh Goyal had 51 per cent stake in Jet—32 per cent pledged with banks—while Etihad Airways has 24 per cent. In February, banks agreed to convert debt into equity at `1, giving themselves a 50.1 per cent stake, but failed to take off with the Supreme Court quashing RBI’s February 12 circular.
“Debt-equity conversion is now a grey area in the absence of RBI’s debt restructuring schemes. Banks can proceed with the conversion provided the loan agreement entails such rights. Else, lenders have to follow the Sebi-mandated formula (six months average share price) to have equity stake,” said Anil Gupta, Vice President, Sector Head-Financial Sector Ratings, Icra Ratings.
Lenders contend that only specific insertions (35AA) of RBI’s February 12 circular are invalid, indicating that they will have a stake, as buyers may not want to repay past debts. “We can have some stake and sell it when the value builds up. We have to recover our exposure to protect the depositors and shareholders’ interest,” said a banker.