Jet Airways, which recently suffered the worst pilot strike, has sought the government’s permission to sell shares to overseas investors to avoid loan defaults and violation of debt covenants, as it may not be able to raise entire funds through equity route from domestic investors.
“The company cannot afford to have a financial crisis impacting its operations, which may have negative cascading effect in terms of sustenance of 13,000 employees, besides defaulting on payment obligations and violating the covenants prescribed by the various lenders,” the company said in a letter to the Foreign Investment Promotion Board.
A Jet Airways spokesperson was not available for comment .Jet, like most of its rivals such as King Fisher Airlines and SopiceJet, is suffering from high debt and spiraling costs. Although distressed investors such as Wilbur Ross have bought stakes in budget carriers, most investors shun airline stocks due to high operational costs , poor profitability outlook and them being vulnerable to the volatile oil prices.
After many months of planning to raise funds, Jet in August, passed an enabling resolution to raise $400 million through QIP, GDR, FCCB, follow-on public offers, rights issue or fully convertible debentures .However, the company decided to opt for QIP as it is the quickest way to raise money.
Investment bankers advising the company believe that they may not be able to help it raise funds from domestic investors alone and that qualified foreign institutional investors should be allowed to participate in the proposed QIP.
“As the appetite for domestic investment in the aviation industry in India is not strong, the company has been advised by its merchant bankers that a QIP to only domestic investors will not enable it to raise the requisite funds and hence, the company should seek participation in such QIP, from qualified foreign institutional investors in addition to domestic financial institutions and mutual funds,” the company said in the letter.
Jet, where foreigners hold 4.99% stake, has said the share sale may be done at Rs 253 per share which may lead to selling nearly 8 crore shares. That would result in dilution of the promoter stake to 42% from 80%. If the entire offer is bought by foreigners, then their holdings may rise to close to as high as 48%.Its share price on Wednesday was Rs 312 per share. At this price, the company has the market capitalization of Rs 2,700 crore.
However, in the first tranche, the company is contemplating to raise up to $200 from eligible domestic and foreign Institutional Investors.
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