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Jet Airways shareholders approve bank-led rescue

Debt-for-equity swap eases cash crunch while search for longer-term investor continues

MUMBAI -- Shareholders of debt-laden Indian airline Jet Airways have voted in favor of a takeover by a group of lenders and a capital increase that will steady the company's finances as it seeks a return to earnings growth.

After a two-hour meeting Thursday presided over by Jet Airways director Gaurang Shetty, up to 98% of the shareholders voted for converting loans into equity, while 97% approved changes to the company's articles of association, the airline said in a stock exchange filing late Friday night.

The voting removes some of the uncertainty surrounding the carrier for both passengers and employees, said an aviation analyst who requested anonymity. "If passengers stop booking, the airline will find it difficult to make a turnaround," the analyst said.

Under a debt-for-equity deal approved by the airline's board on Feb. 14, banks led by State Bank of India will take a 51% stake in the carrier. They are expected to resell the shares, perhaps to Etihad Airways, the Abu Dhabi-based airline that owns 24% of Jet Airways and has been discussed as a white knight.

The debt-for-equity swap, which will entail an issue of 114 million new shares, is expected to fill a funding gap of around $1.2 billion.

Ashish Nainan, an analyst with Care Ratings, said the passing of the resolution represents just the beginning of Jet Airways' long battle for survival.

"The larger challenge would be bringing [20 billion to 25 billion rupees ($280 million to $350 million)] worth of equity from promoters and existing shareholders, which would then be followed by restructuring of remaining debt," Nainan said. "Promoters" in India refers to controlling shareholders, often from founding families.

"It would be also interesting to note who else would make an equity infusion apart from Etihad and existing promoters," he added.

Jet Airways has been battling high fuel prices, a weakening rupee and intense competition that pushed down fares. Employees and aircraft leasing companies have gone unpaid for several months. The airline on Feb. 14 reported its fourth consecutive quarterly loss -- 5.88 billion rupees for the October-December period.

However, details remain lacking for how the airline plans to carry out the turnaround plan after the stake sale. The absence of Jet Airways founder and Chairman Naresh Goyal at the meeting upset some minority shareholders.

"Nobody from management attended the meeting. Naresh Goyal was also absent," minority holder Arvind Gupta said. "They just told us that this is an enabling resolution. I suspect some hidden agenda involved.

"For me the company is dead. I told them that this is my obituary for the company," said Gupta, adding that State Bank of India should have resolved the Jet Airways issue through bankruptcy protection to ensure transparency in the process.

Gupta, who is also a trustee of the Indian Investors Protection Council, questions State Bank of India's role in lobbying for an exemption for Etihad Airways from local takeover rules that require it to make an open offer. Etihad reportedly had plans to raise its stake in Jet Airways to 49%.

Already, analysts question the model being used to rescue Jet Airways, given the patchy record of past debt restructurings.

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