The more that things seem to change, the more they remain the same. The bailout of Jet Airways by its lenders finalised last week and approved by shareholders on February 21 is reminiscent of a bailout seven years ago of another high-profile airline that fell into bad times.
In an attempt to rescue Kingfisher Airlines, a consortium of lenders led by State Bank of India (yes, the same SBI which is now leading the effort to keep Jet Airways flying) decided to convert a part of its loans into equity. Thus, in April 2011, a sum of ₹1,303 crore, representing a third of the airline’s total dues of ₹4,263 crore to banks, was converted into equity.
The scandal, though, was the fact that the conversion happened at a premium of 61% to the then prevailing market price of the Kingfisher Airlines share. The SBI-led consortium agreed to convert its debt into equity at a price of ₹64.48 a share against the market price of ₹39.90!
Cut to the present. Banks have eased themselves into the pilot’s seat of Jet Airways, converting their dues into equity in the airline. Jet, which is reeling under losses for the last four consecutive quarters, has a debt overload of ₹8,414 crore (as of March 31, 2018) which includes terms loans from banks and dues to lessors for aircraft lease.
The airline and banks announced the bailout with much fanfare, but the crucial details have not been disclosed. How much of the banks’ dues have been converted into equity? As per the last audited balance sheet as on March 31, 2018, Jet owed ₹3,007 crore (₹2,797 crore term loan plus ₹210 crore loan repayable on demand) as secured loans to banks.
In addition, a sum of ₹2,121 crore has been grouped under current liabilities in the balance sheet under the head of “current maturities of long-term debt”. These are probably the overdues on loan repayment.
So, how much of this outstanding debt of ₹5,128 crore (₹3,007 crore plus ₹2,121 crore) has been converted into equity? And at what price? The answers to these questions will help us understand how harmful the bailout is for the lenders.
A small, back-of-the-envelope calculation will be useful here.
The banks have been issued 11.40 crore shares for a total consideration of ₹1, giving them a majority stake in the airline. Jet Airways’ share capital before the bailout was ₹113.60 crore divided into 11.36 crore shares of ₹10 each.
On February 15, the day the bailout was finalised, Jet’s share closed at ₹232.55. This would put the total value of the 11.40 crore shares issued by Jet to the lenders at ₹2,651 crore. This sum has a close resemblance to the overdue amount of ₹2,121 crore grouped under current liabilities in the balance sheet. It is also pretty close to the outstanding term loans of ₹2,797 crore from banks. So, have banks converted their entire overdues into equity? With neither the airline nor banks disclosing details, we can only speculate here.
24/03/19 Raghuvir Srinivasan/The Hindu
To Read the News in full at Source, Click the Headline
In an attempt to rescue Kingfisher Airlines, a consortium of lenders led by State Bank of India (yes, the same SBI which is now leading the effort to keep Jet Airways flying) decided to convert a part of its loans into equity. Thus, in April 2011, a sum of ₹1,303 crore, representing a third of the airline’s total dues of ₹4,263 crore to banks, was converted into equity.
The scandal, though, was the fact that the conversion happened at a premium of 61% to the then prevailing market price of the Kingfisher Airlines share. The SBI-led consortium agreed to convert its debt into equity at a price of ₹64.48 a share against the market price of ₹39.90!
Cut to the present. Banks have eased themselves into the pilot’s seat of Jet Airways, converting their dues into equity in the airline. Jet, which is reeling under losses for the last four consecutive quarters, has a debt overload of ₹8,414 crore (as of March 31, 2018) which includes terms loans from banks and dues to lessors for aircraft lease.
The airline and banks announced the bailout with much fanfare, but the crucial details have not been disclosed. How much of the banks’ dues have been converted into equity? As per the last audited balance sheet as on March 31, 2018, Jet owed ₹3,007 crore (₹2,797 crore term loan plus ₹210 crore loan repayable on demand) as secured loans to banks.
In addition, a sum of ₹2,121 crore has been grouped under current liabilities in the balance sheet under the head of “current maturities of long-term debt”. These are probably the overdues on loan repayment.
So, how much of this outstanding debt of ₹5,128 crore (₹3,007 crore plus ₹2,121 crore) has been converted into equity? And at what price? The answers to these questions will help us understand how harmful the bailout is for the lenders.
A small, back-of-the-envelope calculation will be useful here.
The banks have been issued 11.40 crore shares for a total consideration of ₹1, giving them a majority stake in the airline. Jet Airways’ share capital before the bailout was ₹113.60 crore divided into 11.36 crore shares of ₹10 each.
On February 15, the day the bailout was finalised, Jet’s share closed at ₹232.55. This would put the total value of the 11.40 crore shares issued by Jet to the lenders at ₹2,651 crore. This sum has a close resemblance to the overdue amount of ₹2,121 crore grouped under current liabilities in the balance sheet. It is also pretty close to the outstanding term loans of ₹2,797 crore from banks. So, have banks converted their entire overdues into equity? With neither the airline nor banks disclosing details, we can only speculate here.
24/03/19 Raghuvir Srinivasan/The Hindu
0 comments:
Post a Comment