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How Naresh Goyal is trying to 'reboard' Jet Airways

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How Naresh Goyal is trying to 'reboard' Jet Airways

Goyal's expression of interest in regaining the control of the airline is yet to be legally scrutinised by the lenders, but his interest leads to three disparate possibilities

Jet Airways' former chairman and its largest shareholder Naresh Goyal is trying to make a comeback in the airline. Reports suggest that Goyal has backing of two funds - UK-based Adi Partners LLP and Delaware-based Future Trend Capital. Goyal is making this comeback through Jetair Pvt Ltd, a New Delhi-based ticketing and sales agent for airlines with five directors and a paid-up capital of Rs 2.99 crore.

The fact that Goyal, who didn't have money to capitalise the ailing airline a few weeks ago when the airline was in desperate need of money, has suddenly found two partners -- who are ready to bet on him when he has clearly been responsible for its downfall -- seems both bizarre and fishy at the same time.

The information about these two entities in the public domain is next to nil. Delaware is among famous tax havens such as Cayman Islands, The Isle of Man, Mauritius and others. It's understood that these funds have either a lot to lose if Jet goes down - that's why they are open to throw more money - or have blind faith in backing an incompetent promoter like Goyal. Whether these funds or their managers have supported Goyal in the past is yet to be ascertained; however, Goyal's initial source of funding in Jet Airways has been frequently questioned.

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Goyal's expression of interest in regaining the control of the airline is yet to be legally scrutinised by the lenders, but his interest leads to three disparate possibilities.

Goyal, like other entities who have shown interest in Jet, is expecting banks to take a major haircut in order to get rid of the airline. Some are expecting haircuts of about 50-60 per cent, which translate into Jet's debt coming down to about Rs 3,400 crore, a sharp drop from the current debt level of about Rs 8,500 crore. For Goyal, it's the best deal that he can get - making a comeback in the airline with far lower debt burden on his shoulder. Also, since lenders are infusing money into the company - Rs 250 crore that they have already invested and Rs 1,000 crore is expected - to keep the airline afloat, the funding requirement for the time being will be taken care of.

After taking control of the airline, bankers have more or less relieved Goyal from his responsibilities of meeting Jet's debt obligations. The expression of interest (EoI) floated by SBI-led bankers on April 8 doesn't detail the sale process as to whether bankers will engage with potential suitors individually to derive the best valuation for the airline or they will go for the bidding process where the highest bidder would win. All that has been left to the imagination.

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The other possibility is Jet's current (minority) shareholders are getting a raw deal. During the sale process, the company's valuation is not expected to be assessed at the current market value. Jet's assets - slots, owned aircraft, market share, frequent flier programme, etc - are likely to be massively undervalued by the potential suitors. Unlike Air India that has real estate assets and Kingfisher Airlines that had backing from other group companies (UB, USL), Jet's assets are largely intangible.

Bankers are in desperate situation right now because Jet's most important asset - airport slots and bilateral rights - have a limited life. If the airline is not able to use these slots for 90 days, they will be redistributed to other airlines that are keen to pick up these prime slots obtained by Jet over the years. Some of Jet's slots have been redistributed already. Jet has about 106 slots at Mumbai airport, the highest among all domestic carriers.

The third possibility is that the government might look at the section 29A of IBC (insolvency and bankruptcy code) that prohibits promoters with more than one year of non-performing assets (NPAs) to re-bid for the companies that they once owned. In Goyal's case, his first default took place in January, so technically he is eligible to re-bid. Though this case doesn't come under IBC, the rules need to be further strengthened - either by the RBI (which is formulating a new policy) or NCLT - to disallow such promoters to evince interest in companies they destroyed. Goyal's eligibility to re-bid for Jet is based on lenders' discretion right now.

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