Jet crisis: From SBI to IOB, PSBs to be hit hardest if there's no buyer

Public sector banks (PSBs), which account for 70 per cent of the over Rs 7,000-crore loan given to Jet Airways, will take the biggest hit if no buyer is found for the ailing and now temporarily shut airline. According to sources, State Bank of India and Punjab National Bank together comprise around 53 per cent of the total loan exposure. The other PSBs which have lent heavily to Jet include Canara Bank, Indian Overseas Bank and Bank of India. Amongst the private banks, YES Bank has the largest loan exposure, followed by ICICI Bank and IDBI Bank.

Any potential buyer of Jet would be staring at a total debt of around Rs 11,000 crore unless they get substantial write-offs. The debt not only includes loans from Indian public and private banks, but also from foreign banks. Jet had raised external commercial borrowings of Rs 910 crore from HSBC and Rs 1,400 crore from Dubai-based Mashreq Bank. The HSBC loans were guaranteed by Jet’s joint venture partner Etihad Airways, which is now unwilling to execute the guarantee. 

Jet has told the stock exchanges it has been unable to repay the loan to HSBC, which was to be in two tranches ending March 27, 2019, but hoped to do so after the airline was restructured. The new owner has to come to a settlement on this amount.

The prospective buyer will have to contend with other debts as well. These include non-convertible debentures to the tune of Rs 700 crore and unpaid interest of over Rs 1,000 crore accrued by the airline. That apart, they have to pay off lessors as well as refinance the Rs 2,400-crore loan given by US Exim Bank to acquire 10 Boeing 777s. Jet has the option of getting the ownership of these planes (the loan is securitised against the planes) and can then go for a sale or lease back to generate cash.

Around 56 per cent of the total lending to Jet by the consortium of Indian banks is in the form of working capital loans while the rest is under term lending. However, 90 per cent of the working capital loans is non fund-based (bank guarantees and letters of credit), whereas 80 per cent of the term lending loans is fund-based (loans, cash credit, overdraft).

In an earlier resolution plan, lenders had envisaged that Jet could release around Rs 750 crore which is with credit card holders (customers buying tickets) and with IATA (as part of the settlement for international travel) to partly fund its revival. But this seems unlikely after Jet’s temporary closure. The money may now be used to square off dues to customers who are clamouring for repayment after flight cancellations. If the banks sold the 32 per cent of Jet founder Naresh Goyal’s stake pledged with them, they could earn around Rs 650 crore at current prices. However, with the uncertainty looming over Jet’s future, the price of shares is likely to fall further, shrinking the money that can garnered through this route.