HYDERABAD: Shares of Jet Airways are showing an unusual level of perseverance as traders bet on the ongoing save-the-airline talks. Shares slumped about 3.5 per cent in morning trade on bourses Tuesday, hours after reports emerged that the airline failed to secure emergency funding, confirming the worst fears about a shutdown.
The airline is barely surviving from day to day, its international and domestic operations are hit, fleet reduced to a handful from the mighty 120, while vendors are waiting to butcher the airline over non-payment of dues. Jet also delayed employee salaries since January. These are reasons enough for the stock to fall with intimidating speed prompting traders to resort to panic selling.
We have seen such chilling precedents with Kingfisher Airlines and most recently SpiceJet during their moments of crisis. But not so with Jet, whose Tuesday's stock slump at a mere 3.5-3.8 per cent is by any standards less than mild.
"While varying possibilities are emerging, including the hunt for a new buyer and/or a debt write-off, Jet Airways' viability has taken a hit. And yet, the stock price remains firm," brokerage Edelweiss Securities said in a note last week.
Puzzling, but traders, who seldom disguise their unease over uncertainty, aren't perturbed by Jet's indirection. The scrip crashed over 62 per cent in the past one year, but last months saw traders taking comfort in lender's proposal to takeover ownership. In the past one month, the airline's stock barely fluctuated from Rs 237 on March, 18 to Rs 235 now, while in six months, it actually gained 7 per cent from Rs 219 in October, 2018.
"Although there is notable equity dilution given fresh shares have been issued at a token total consideration of Rs 1, we have assumed that debt will be written off to the tune of Rs 2,800 crore. This translates to a hypothetical conversion price of Rs 250 per share; as a result, equity dilution will be offset by the debt write-off, leading to no change to our target price on this particular account," Edelweiss noted. Perhaps, traders built on the prospect of lenders' debt-equity conversion, but in reality, such conversion is yet to take place.
Evidence came last evening from lead banker SBI, which in a statement said, 'the proposed equity conversion by banks, if any, will be undertaken as a transitory mechanism to facilitate the bidding cum sale process.'
Jet has a debt of over Rs 9,000 crore and that's the bill prospective buyers wouldn't prefer picking up. Put another way, lenders may have to write off 100 per cent, failing which, analysts say, Jet will likely meet the same fate as Air India that failed to attract buyers last year.