Jet Airways raised foreign currency term loans worth Rs 1,100 crore and a non-fund based credit facility of Rs 950 crore from PNB
Monday, March 11, 2019 –
Cash-strapped Jet Airways has secured funds worth Rs 2,050 crore from state-run Punjab National Bank (PNB) in a bid to provide temporary support to the carrier. The airlines raised foreign currency term loans worth Rs 1,100 crore and a non-fund based credit facility of Rs 950 crore from PNB, Mint reported.
This credit has been raised in two trenches through separate agreements with PNB. Under one agreement, the airline received a credit of Rs 1,050 crore, including a term loan worth Rs 350 crore and a non-fund based facility of Rs 700 crore, the report said. With the second agreement came credit worth Rs 1,000 crore, including a term loan of Rs 750 crore and a non-fund based facility of Rs 250 crore.
Utilisation Of The Funds Is Still Unclear
It is unclear how the carrier will use this credit. While speculation is that the funds will be used for its working capital needs, sources told the newspaper that the airline wants to use the money to clear dues to aircraft lessors and pay staff salaries.
This fund infusion may prop up Jet Airways’ credit rating and help resume flights that have been cancelled ever since at least 49 of its planes were grounded in February.
“The loan has been raised in dollars at a stronger rupee as compared to the value of the rupee now. So, there is a cost arbitrage, which could help the company repay larger rupee loans,” a source cited earlier said.
The term loans have a five-year repayment tenure, but their interest rates are varied. The Rs 750 crore loan has been extended at a rate of 12-month Libor plus five per cent and a yearly reset. For the Rs 300 crore term loan, it is six-month Libor plus 3.5 per cent and a half-yearly reset.
Jet Airways Had To Create A TRA To Avail The Loan
The airline can sell down Rs 250 crore of the term loans to investors according to the agreement. “The non-fund based facility can be later converted to current account credit facility and be used to fund operations or meet other dues,” the source added.
To avail of the loan, Jet Airways had to create a trust and retention account (TRA) through a tripartite agreement with PNB and ICICI Merchant Services. This mechanism is used to protect banks and lenders against defaults by insulating the project’s cash flows.
Under this pact, the TRA agent has to make all payments to lenders directly, without the borrower’s intervention. This includes managing the project’s operation and maintenance expenses, maintaining a debt servicing reserve and a separate cash reserve for operational spending.
Jet Airways had a debt of Rs 9,600 crore as of December 31. It has incurred a total loss of Rs 3,200 crore in the nine months through December, with a negative net worth of Rs 10,370 crore.