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Jet Plans Equity Sale, Rs 1,000 Crore Debt From Abu Dhabi Fund

12 November, 2008

Jet Airways, the country’s largest airlines, is desperately seeking funds as losses continues to pile up with dropping air traffic and higher operating costs. While it is reportedly (The Economic Times) in talks with Temasek to sell 10% stake it appears that the airlines is also seeking loans from overseas entities to keep the business running. Acoording to Mint and Business Standard reports, Jet is in talks with Mubadala Development Co, an investment firm of the emirate of Abu Dhabi, for a Rs 1,000 crore(~$210 million) loan to meet working capital and other expansion needs.

The Temasek deal being negotiated is believed to be worth around Rs 250 odd crore which values the airlines at Rs 2,500 crore, much higher than its current market cap of Rs 1,680 crore.

Interestingly, this investment will also mean another instance where Temasek (one of the two sovereign wealth funds of the Singapore government) will have exposure to competing firms in the same sector. Temasek has stake in ICICI Bank besides having significant equity interest in other global banks such as Standard Chartered and DBS which also operate in India.

However, this could be an interesting case and could face other stumbling blocks. Currently foreign airline operators are not allowed to invest in Indian airlines. While Temasek itself is not an airline operator it holds majority stake in Singapore Airlines. It is to be seen how does the government treat Temasek’s investment in the sector.

Jet Airways is facing tough times. The firm, which also runs low-cost carrier JetLite, suffered a net loss of Rs 384 crore in the September quarter, as against a net profit of Rs 283 crore in the same period last year. The change in fortunes, largely to do with the jet fuel costs which shot up early this year as crude hit an all time high and higher ticket prices lowered air traffic, had also forced the firm to delay its planned $400 million rights issue which got a board approval more than one year back.

Given the stock market crash those plans could well have gone into deep freezer as the current market cap of the firm itself is at around $360 million, less than the proposed rights issue size.

Valuations have shrunk sharply for Jet Airways along with the collapse of the stock markets.  Jet’s stock price has come down from a 52 week high of Rs 1,049 (Deecember 19’07) to Rs 197 (as of November 12), an erosion of more than 80%.

According to the ET report, Jet is also looking to follow the private equity placement with Temasek with another round of fund raising plan next year when the market situation improves. The promoter (Naresh Goyal) has as of now enough headroom to look at such equity dilution as he is sitting with high equity stake. As of September end he held 80% in the company.


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Jet Plans Equity Sale, Rs 1,000 Crore Debt From Abu Dhabi Fund

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