SpiceJet’s lenders have expressed concerns over the airline’s decision to hive off its cargo business into a wholly-owned subsidiary. AT the AGM in December the airline proposed to its shareholders a special resolution to ‘transfer the cargo business as a wholly-owned subsidiary’. It had said it “plans to add more cargo aircraft to scale up SpiceXpress’ existing capacity and transform it into a fullscale freighter cargo service”. The shareholders had voted in favour of this resolution. This action effectively devalues the remaining airline that the banks have been lending to of late. IDFC First, Allahabad Bank, YES Bank, ICICI Bank, City Union Bank and Export Development Bank has all expressed concerns over the move and are threatening to enact a special covenants clause in the loan agreement(s), under which the permission of the lenders is mandatory before taking such action. The special covenant clause states: “The borrower shall not without prior written permission of the bank undertake or permit any merger, de-merger, consolidation, reorganisation dissolution or reconstitution scheme of agreement of compromise with its creditors or shareholders or effect any scheme of amalgamation or reconstitution including the creation of any subsidiary or permit any company to become its subsidiary.”
There is no question that SpiceJet will breach this clause if they move to hive-out the cargo operations and break-up the cash management of the cargo and passenger airline(s). SpiceJet will have to re-think its plans at speed or involve the banks.