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Jet Airways Almost on The Brink of Shutdown, Facing Mounting Ground Problems

The possible scenario which may send the scrip plunging, say analysts, is if the bidders do not match up to the expectations of lenders or they lose interest after the initial Expression of Interest or the whole process gets entangled or delayed in the law courts.

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"In the case of other airlines facing stress, the government reacted differently largely because of their lower share on international routes," he added. Pixabay

BY: RAVI DUTTA MISHRA

From a fleet of 119 until last year to only 7 as of on Monday, Jet, once India’s second-largest airline by market share, is almost on the brink of a shutdown. But the change in fortune for the airline has not dented investor confidence as the Jet counter continues to remain resilient.

Jet’s scrip is down just by a little over 6 per cent since January 1 even though the airline’s performance has nose-dived ever since it defaulted on its loan commitment in December.

For Jet, the developments are unlike how things panned out for an airline like Kingfisher during its turbulent times that ultimately led to its closure. Analysts say that this is largely owing to Jet’s 30 per cent market share on international routes.

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Prior to the grounding which has depleted around 90 per cent of Jet’s fleet size, the airline, with its large fleet, offered flights to 56 destinations in India and overseas. Pixabay

“The government is keen that they should keep this entity afloat by selling it to other airline partners. This is also important as Jet accounts for 30 per cent market share on international routes,” Sandeep Raina, Associate Director, Edelweiss Professional Investor Research, told IANS.

“In the case of other airlines facing stress, the government reacted differently largely because of their lower share on international routes,” he added.

Prior to the grounding which has depleted around 90 per cent of Jet’s fleet size, the airline, with its large fleet, offered flights to 56 destinations in India and overseas.

Besides its international share, Jet has some valuable assets, said Deepak Jasani of HDFC Securities.

“It owns 16 planes which are worth $400 million. The Jet Privilege programme, the international routes, and landing and parking slots in key cities make the airline an attractive option for potential buyers or can be easily monetised by its lenders (under IBC),” he added.

However, the airline on Monday said it has extended the cancellation of all its international flights until April 18, which might spell trouble for it on the stock exchanges.

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Jet’s scrip is down just by a little over 6 per cent since January 1 even though the airline’s performance has nose-dived ever since it defaulted on its loan commitment in December. Pixabay

Inflating debt is another major concern for investors. Jet owes over Rs 8,000 crore to a consortium of lenders led by the state-run State Bank of India (SBI).

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The possible scenario which may send the scrip plunging, say analysts, is if the bidders do not match up to the expectations of lenders or they lose interest after the initial Expression of Interest or the whole process gets entangled or delayed in the law courts.

“If a non-strategic investor (including the National Infrastructure Investment Fund) wins the bid or the company needs to be nationalised or taken over by the government (through Air India or any other route)… in all such cases, its stock price could plunge,” said Jasani.(IANS)

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Businesses in Vietnam Face Cash Shortage: Study

Cash Shortage Hurts Investment in Vietnam

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Vietnam Booming Economy
A woman sells vegetables at an outdoor market in Hanoi, Vietnam. VOA

Businesses in Vietnam face a cash shortage that is preventing as much as $24 billion that could be invested in the nation’s $250 billion economy, according to a study by PwC Vietnam.

The financial services company analyzed the 500 businesses in Vietnam with the highest revenue that have been listed on both the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange for the last four years or more. PwC Vietnam analysts said that those companies’ “cash conversion cycle” has increased, meaning that they have to wait longer from the start of the business cycle, when they first make their investments, until those investments start to pay off in the form of revenue.

“We continue to see cash flows being sacrificed to attain top line targets in Vietnam, which is not sustainable for businesses in the long run,” said Mohammad Mudasser, who leads the working capital management practice at PwC Vietnam. “Managing operating working capital is a cross-functional responsibility,” he added.

Top line refers to revenue, while bottom line refers to profit.

Vietnam economy
Due to lesser investments in businesses, startups are not growing in Vietnam. VOA

To sacrifice cash for the sake of revenue targets usually means that companies are willing to make an initial cash investment, often to buy inventory that can be sold for revenue. However the long cash conversion cycle suggests that there are some inefficiencies along the way, such as longer wait times between billing a customer and actually collecting the payment.

While there is no perfect business cycle, the PwC Vietnam study suggests companies in Vietnam could tackle some inefficiencies to unlock further potential in the already fast growing economy.

In 2018 Vietnam had one of the highest cash conversion cycles in Asia, at 67 days, which is an increase of two days compared with 2017, according to PwC Vietnam. That compares with an average in Asia of 58 days, and in particular 64 days in neighboring Thailand and 54 in Malaysia. That means those other Southeast Asian countries are able to turn their investments into cash sooner than Vietnam does.

“The fast-growing companies had significantly higher short term debt growth, indicating risks to the sustainable growth of these companies,” PwC Vietnam, a consulting company that sells tax and accounting services, said in a press release.

If the U.S. Federal Reserve Bank increases interest rates in the coming year, as some economists are expecting, emerging markets, such as Vietnam, could follow. That would increase borrowing costs for companies, increasing their vulnerability to debt.

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However it estimated that only a fraction of that capital could be released, $11 billion, because some of the capital has to stay in the business cycle. Analysts said inventory and outstanding invoices, known as accounts receivable, where the best bet for improving efficiency. That could mean that too much inventory is being held, or that companies are waiting too long to be paid by customers. (VOA)