Jet Airways stock nosedives 5% after ICRA cuts credit rating to lowest

Written by fe Bureau | Mumbai | Updated: Aug 26 2014, 06:45am hrs
The Jet Airways stock tanked 4.87% to Rs 232.65 on Monday, after ratings agency ICRA dowgraded the companys credit rating to [ICRA]D, the lowest it awards to companies, implying debt servicing challenges.

Debt instruments with this kind of rating have either defaulted or are expected to default soon.

However, Jet Indias third-largest airline by passenger volumes said the delay in debt servicing, which led to the adverse rating action, had already been resolved in the previous fiscal and the airlines representatives were in touch with ICRA.

In a report dated August 21, ICRA mentioned that it had revised the rating assigned to Jets long-term, fund-based bank facilities worth Rs 3,210 crore to [ICRA]D from [ICRA]BB earlier. The agency also gave its lowest rating to Jets short-term, fund and non-fund based bank facilities worth Rs 4,250 crore from [ICRA]A4 earlier.

The ratings revisions reflect delays in debt servicing by the company, the ICRA report said. Since January, Jet has lost 19.52% of its market value while the Sensex has gained 24.9%.

Jet Airways officials said they have taken up the issue with Icra on Monday to to set the record straight.

It is very disappointing that the recently published ICRA downgrade is based on a historical delay in debt servicing, which occurred and was resolved in the previous financial year, a Jet spokesperson said in a statement.

In fact, there was no outstanding default in the repayment of dues to the financial institutions and banks as at March 31. Jet Airways can confirm that the airline is current on all its loan obligations and interest payments.

But Icra claims its ratings action on Jet was in line with what regulations stipulate. According to Sebi (Securities and Exchange Board of India) guidelines, if there is a delay in servicing of loans, where there is a payment schedule as per terms of agreements, the ratings have to go to D, which happened in the case of Jet Airways, said an Icra official on the condition of anonymity since he is not authorised to speak to the media.

If Jet has been servicing its debt regularly in the last three months and the information Icra gets from the company is satisfactory, it can revise the rating upwards again, the official said.

Spokespersons for Canara Bank and Bank of India said the Jet loan was a standard account in their books.

A senior executive with a public sector bank told FE that companies whose ratings have been downgraded to D don't get fresh funding from banks, though some loans could be sanctioned to the company to ensure regular debt servicing. He declined to be identified. Such fresh capital is extended only if the company agrees to pledge some collateral like real estate," the banker said.

As on March 31, Jet Airway's net debt stood at Rs 10,258 crore, according to Bloomberg data. However, an HSBC report dated August 12 pegs Jets net debt at Rs 22,228 crore. At a conference call with analysts in January, Jet officials said the airline had reduced its net debt to Rs 10,895.20 crore during the quarter ended December 31.

According to Centre for Asia Pacific Aviation (CAPA) Indian airlines are expected to post losses of $1.3-1.4 billion in FY15, down from a $1.7 billion loss last year

In November, Etihad Airways picked up 24% in Jet for Rs 2,060 crore. Almost the entire equity infusion has been wiped out by the airlines FY14 losses, another CAPA report released in January said.

Jets chairman Naresh Goyal had said in August that the airline, which last posted a profit in the quarter ended December 31, 2012, is looking to turn around operations and head towards profitability by FY17. To further streamline operations, Goyal announced it would operate all flights under a single Jet Airways brand, doing away with other brands like Jet Konnect.

Jet Airways is a patient who is gradually recovering. However, till the industry doesn't see reforms and policy changes, such downgrades will continue to happen, said an aviation sector consultant with a global consulting firm.