Creditors consider action against Air Seychelles in Etihad debt saga

DUBAI (Reuters) - Holders of around $70 million in troubled bonds issued on behalf of Air Seychelles are considering options including enforcement against the African carrier, according to sources and documents.

The action under consideration is the latest twist in broader creditor efforts to recover $1.2 billion in funds owed by Abu Dhabi’s Etihad Airways and related airlines including Air Seychelles.

Etihad is state-owned Air Seychelles’ second-biggest shareholder.

Air Seychelles, which has been hit particularly hard by the coronavirus crisis, was part of a consortium comprising Etihad and related airlines that borrowed the $1.2 billion through a special purpose vehicle in 2015 and 2016.

Air Seychelles and a steering committee of debtholders have engaged in restructuring talks since last July after the airline said it was struggling to honour its portion of the debt, worth around $70 million, due to the COVID-19 outbreak.

Creditors are now considering options including enforcement action against the carrier, sources familiar with the matter said, the latest turn in a debt saga resulting from the unravelling of Etihad’s strategy to embark on global partnerships with airlines such as Air Berlin, Jet Airways, and Alitalia, which have since gone bankrupt.

Air Seychelles latest proposal, disclosed last month in a regulatory filing by the special purpose vehicle, EA Partners, sought a writedown of more than 70% of the outstanding debt, with the remaining payment guaranteed by the government of Seychelles. However, that has been rejected by creditors.

“The Noteholder Committee has not observed any urgency or seriousness in the proposals received from Air Seychelles to date,” the creditors said in a statement to EA Partners, published in a separate filing last month.

The creditor proposal envisages EA Partners writing off 20% of the debt, with full payment of accrued and unpaid interests. They said their proposal recognises the difficulties faced by the airline and supports adequately its recapitalisation.

Air Seychelles declined to comment and the Seychelles government did not immediately respond to an email seeking comment.


Even before the coronavirus froze most air traffic, the EA Partners notes had lost more than half their value after the bankruptcy of several of the borrowing airlines.

Etihad is not legally obliged to back the bonds as the original $1.2 billion deals envisaged each carrier paying off its own portion of the debt, according to the debt documentation reviewed by Reuters.

Etihad bought a 40% stake in Air Seychelles in 2012, investing $20 million and providing an additional $25 million as a loan to help Air Seychelles meet working capital requirements and support network development.

The Seychelles government now plans to buy the entirety of Etihad’s 40% stake in Air Seychelles at a nominal value, one of the December regulatory filings said. Etihad, which did not respond to a request for comment, has also agreed to a 79% haircut on debt it was owed by the African airline.

Etihad’s stake in another airline, Air Serbia, has also recently been cut, after the Serbian government recapitalised the airline, Air Serbia said last month.

Aviation has been one of the industries worst hit by the COVID-19 crisis, forcing airlines to lay off staff and seek government bailouts. Etihad has slashed jobs and salaries.

The Abu Dhabi state carrier was making losses even before the coronavirus outbreak, but its core operating loss deepened to $758 million in the first half of last year as passenger traffic fell by nearly 60% due to the pandemic.

Reporting by Davide Barbuscia; additional reporting by Omar Mohammed; Editing by Susan Fenton