SpiceJet has yet to receive lender approval for cargo unit separation
Even as Ajay Singh plans to divest SpiceXperess, SpiceJet’s cargo business, by August, he has yet to receive approval from his lenders. SpiceJet applied for the No Objection Certificate (NOC) more than six months ago. However, sources said the lenders do not appear to have clarity on the defeasance. “We haven’t been given any specifics yet. We don’t believe the hive will be complete by August,” a banking source said.
According to multiple sources, SpiceJet only received conditional approval from YES Bank; however, he did not receive approval from any of his other lenders.
“YES Bank has also given a list of fourteen conditions, which must be met by SpiceJet if it wants approval. These include details and documents of the potential investor, the amount to be raised by the airline, the contours of the possible deal and a host of other conformities,” a person familiar with the development said.
However, when Activity area contacted SpiceJet, a spokesperson claimed that “approval has already been received from major lenders”. SpiceJet’s lenders include YES Bank, Indian Bank, IDFC First, City Union Bank, Export Development Bank, Allahabad Bank and ICICI Bank.
Indian Bank is SpiceJet’s second largest lender after YES Bank. According to sources, SpiceJet has yet to receive approval from its other banks.
In February last year, SpiceJet published a list of resolutions its shareholders had accepted at an annual general meeting. Among other resolutions, the shareholders “authorized the board of directors to transfer by sale or otherwise the freight business of the company to its wholly owned subsidiary, namely SpiceXpress and Logistics Private Limited”.
At this moment Activity area had reported citing sources that the loan sanction letter included a special covenants clause, under which permission from lenders is mandatory before making such decisions.
He had claimed that the transfer of the freight business would provide a greater and differentiated focus on the segment, while allowing the “opportunity to raise capital” to accelerate its growth, said the company’s annual report for the FY21, adding that “it will provide greater opportunity and flexibility in pursuing long-term growth plans and strategies for the SpiceXpress business.”
According to sources, SpiceJet said it would raise up to $1 billion from the sale of the cargo business. However, sources wondered, “Where is the investor who is willing to invest in the freight business,” the person said, adding that “lenders aren’t going to walk away from the business just like that.”
The person had pointed out that if passengers and cargo – as two elements of the airline business – are removed, then “the debt of lenders moves away from this cash flow, which is a loss for the banks. You are removing one of the important cash segments of the business, and it will affect cash flow.
SpiceJet has come under scrutiny regarding technical issues, legal cases, late payments and defaults.
July 12, 2022