In September 2021, SpiceJet had taken shareholders’ approval to transfer it’s cargo and logistics services business to its subsidiary, SpiceXpress and Logistics Private Ltd. (SLP), on a slump-sale basis, for Rs 2,555.77 cr.
In it’s board meetings dated February 27, 2023, it has finally fixed April 1, 2023 as the date from which cargo business shall be exclusively undertaken by SLP.
- Consideration Value remains same at Rs 2,555.77 cr
- However, nature of the consideration has changed. Originally it was only supposed to be equity shares. Now the consideration includes equity shares and Compulsorily Convertible Debentures (CCD).
- As per the Company, the CCDs will be converted into equity shares of SLP at an anticipated future valuation of USD 1.5 bn.
The transaction is still subject to final NOC from the lenders.
Delay in transfer seems to be due to the restructuring related negotiations with the creditors especially the aircraft lessors. SpiceJet has now informed the following settlement with the aircraft lessors.
- Debt-equity swap with aircraft lessor Carlyle Aviation Partners (CAP)
- issue equity shares in Spicejet against US$ 29.5 mn lease liabilities @ Rs48/ share or regulatory determined price, whichever is higher. Following this transaction, CAP will own over 7.5 per cent equity stake in SpiceJet.
- issue CCDs of SLP against US$ 65.5 mn lease liabilities. It’s key to note that these CCDs will not be in addition and will be out of the above that SpiceJet got from SLP as consideration for the business transfer.
- Settlement with the aircraft lessor Castlelake
- SpiceJet will acquire the entire shareholding of an affiliate Company (of Castlelake) that owns two Boeing 737-800 airframes. Consideration for this transaction is not disclosed.
SpiceJet believes that the above restructuring will significantly deleverage it’s balance sheet, paving the way for growth and external fund raise. It accordingly wants to take an enabling shareholders’ approval for raising fresh capital of upto Rs.2,500 Cr (same as in September 2021).
To me, the subject transaction is in the right direction. However, please note the following –
- SpiceJet’s liquidity position is tight and 43% of airline’s fleet is grounded. The subject restructuring is non cash and it’s debt repayment capability continues to remain questionable. The Company needs sizeable external fund raise to manage this.
- $1.5 bn valuation of SLP looks exciting given that SpiceJet’s own market cap currently is only Rs 2,200 cr. However, I will ignore it for now unless there is sizeable external fund raise at that valuation and I have an opportunity to only take stake into that entity. Carlyle’s subscription is immaterial as their subscription is forced against their existing doubtful lease receivables.