The troubled low-cost airline SpiceJet will find the going tough as risk-averse banks are unlikely to provide loans.
Though the Government has urged banks to rescue the Chennai-based airline with ₹600 crore working capital loans, banks have so far not shown willingness to provide any loans.
State Bank of India, which currently doesn’t have any exposure to SpiceJet, flatly refused to give loans. “We are not there (as a lender) and will not be a part of it,” said Arundhati Bhattacharya, Chairman and Managing Director, SBI.
SBI has no outstanding loan with the airline.
An official of a private bank with exposure to SpiceJet said, “No fresh proposal has come our way… We cannot have a struggling airline as a business opportunity as it would be a risk.”
The official added that the bank has sufficient collateral including shares and some current assets, which is multiple times the loan and hence is not worried.
Existing lenders to SpiceJet include Allahabad Bank, City Union Bank and Yes Bank.
These banks are demanding more guarantees in the form of equity and security before taking any further risks to bail out the airline.
Funds if promoter walks firstA senior official of a large private sector bank with no exposure to SpiceJet said, “Long-term funding could help SpiceJet but it looks tough for banks to lend as the company first needs to bring in more promoter equity and security before banks can take more risks... But we have no exposure and so no plans to lend at present.”
The official said, even if they look at it as a fresh proposal, they will be more cautious given that SpiceJet has a large amount of debt.
In its second quarter, SpiceJet incurred losses of ₹310.5 crore for the period ended September 30, 2014 and accumulated losses of ₹2,958 crore as at that date against shareholders’ funds of ₹1,498.5 crore. As on September 30, 2014, the company's total liabilities exceeded its total assets by ₹1,460 crore, it said on its website.
The company has total liabilities of around ₹2,000 crore, including dues to state-run oil companies and Airports Authority of India (AAI)
However, the company is in urgent need of ₹600 crore fresh loans to stay afloat but given the state of its financials, banks want the airline’s promoters to bring in equity.
As per BSE, the promoter holding in SpiceJet is at 29.1 per cent as on September 30, 2014.
Despite the troubled state of the industry, some bankers feel there are better times ahead for airlines as the oil prices are low, demand increasing and therefore, from a business perspective, it is a good time for airlines to improve their operations metrics.
“So, at this stage it would be foolish to not lend if you already have enough exposure and let that go instead of trying a bit more and recover the whole loan amount later. But firstly, the promoter needs to step forward,” said a banker.
If SpiceJet fails to get the funding, it will soon join the grounded Vijay Mallya-owned Kingfisher Airlines, making it the second airline in nearly three years to shut shop.