Chennai: Crisis-hit Jet Airways (India) Ltd has pledged its fixed deposits (FDs) with various banks, totalling Rs 1,500 crore, to borrow Rs 225 crore from the State Bank of India (SBI), reports state.
The loan documents of the airlines show that the airline has the option to borrow more from SBI with the same FDs as security.
The airline decided to borrow against the FDs rather than redeem them because the deposits continue to earn a higher interest than what Jet has to pay to SBI, the Mint reported, a person to have said.
“Banks were reluctant to sanction a term loan to Jet Airways without gaining exclusive rights on the airline’s interest-yielding cash deposits or appreciating assets or equity share pledges,” said the report and added, “Finally, SBI agreed to disburse a term loan after Jet Airways allowed the bank to pledge all its FDs with exclusive rights. Jet Airways may raise more capital from banks and stakeholders as part of the overall resolution plan.”
Since 8 February, lessors have grounded at least 23 planes because of non-payment of rent. In the past few months, Jet has struggled to pay dues to banks, vendors, lessors and employees, and has seen a series of credit ratings cuts. It has recorded losses of more than Rs 1,000 crore in each of the previous three quarters, and is expected to post a loss in the March quarter too.
A negative net worth and several credit rating cuts have forced what was once India’s premier private airline to borrow against FDs, usually the last resort for companies facing liquidation risks or having no creditworthy assets.
Lenders typically demand secured assets with assured returns only when they suspect the borrower’s ability to repay the loan or the company has no other income-yielding asset or has all other assets pledged for other loans.