Jet Airways has got an approval from the Cabinet Committee of Economic Affairs or CCEA to raise USD 400 million via a QIP issue, reports CNBC-TV18’s Sonia Shenoy.

Here is a verbatim transcript of her comments on CNBC-TV18. Also watch the accompanying video.

It comes as a huge relief for Jet Airways the market was waiting for this kind of deleveraging on the balance sheet of Jet Airways.

The CCEA has approved the QIP of Jet Airways for USD 400 million to the tune of about Rs 2000 crore. This was pending for many months. The proposal was struggling for three months on account purely that the Civil Aviation ministry had objected to the breaching of the FDI limit in the company.

On the back of that there was lot of to and fro and negative news had come in as far as their QIP was concerned, and it wasn’t allowed to go through.

The funds that they are planning to use that will be raised will be used to pare off their debt and cash infusion into their latest affair Jet Konnect.

Consolidated debt

As of now their debt-equity ratio is more than 10 times as of FY10. Their consolidated debt is about Rs 14,500 crore as of September’09 out of which Rs 10,300 crore is only the aircraft debt.

That is the kind of debt situation that they are sitting on right now and this equity infusion will come in as a huge relief for the company particularly as far as de-leveraging as far as the balance sheet is concerned.

If you do the math, the total dilution of 15-16% is expected and the holding of the principal promoter Naresh Goyal will shrink from about 80% to 42% post this particular QIP issue.

The current payment obligation that they have in the next quarter is of USD 330 million. Earlier, the FIPB had deferred Jet Airways plans for a long time. This comes as a relief as far as Jet Airways’ cash infusion is concerned.

Also they have other plans to deleverage their balance sheet along with leasing a couple of their aircrafts which will also help them gain some funds.

Airline companies are seeing a whole lot as far as cash flow is concerned and the only Achilles ’ heel for them has been the equity infusion into the company and the debt situation they are currently sitting on. Apart from that the entire demand scenario is picking up, load factors picking up and the cash flow situation is looking quite robust and even prices are seeing an upmove.

Analysts’ views

When we speak to analysts and the experts we get the feeling that the debt is the biggest concern in this sector. Although there is improvement in demand and sporadic movements as far as load factors are concerned, capacity is concerned, this is all very momentary.

So a lot of analysts are still not gung-ho about the position. We just had a brokerage who came out with a report saying although their call on the entire aviation sector was negative and although there is some improvement they are seeing as far as the demand picture is concerned, load factors are concerned, yet they are not quite positive until and unless the debt situation really gets cleaned up in the books of some of these companies like Kingfisher and Spice.

Jet Airways is a big deal for them and only post some of this cleaning up of balance sheet gets done, will they kind of reaffirm and believe more on the growth story for these companies.