SpiceJet Share Price locked in 20% upper circuit – What is the story?

On 7th December 2023, the stock of SpiceJet Ltd was trading locked at the 20% upper circuit price of ₹52.29 per share on the BSE. The stock has been temporarily suspended on the NSE so the NSE price is not available. The actually gains for Spice Jet started a few days back when the NCLT ruled against one of the global aircraft lessors trying to file for dissolution of SpiceJet. Earlier this year, SpiceJet had offered shares in the airline in lieu of the dues of lease rentals. However, the biggest challenge for SpiceJet has been to get the funding to allow the airline to be able to run at full capacity once again. Apparently, that is the area where the company has made some progress and that explains the enthusiasm of the stock locked in upper circuit on Thursday December 07, 2023.

Story of the 20% circuit on SpiceJet Ltd stock

If you take a longer term perspective of 2 months, the stock of SpiceJet has rallied from ₹35.32 to ₹52.29, implying a 2 month rally of a whopping 48% on the stock. However, let us get back to the 20% upper circuit on December 07, 2023 and the reason behind that. On December 06, 2023, the company had file with the stock exchange that the board of SpiceJet Ltd will meet on December 11, 2023 to discuss various options for fresh fund raising. Airlines are, by default, a working capital intensive business. Hence perpetual access to funding is the basis for the sustenance of an airline. That is the case with SpiceJet and that is why this fund raising news becomes so critical for SpiceJet.

The stock has rallied 48% in the last 2 months and 32% since late October. The mode of funding is yet to be worked. Apparently, the fund raising is likely to be through the issue of equity shares or convertible securities on a preferential basis in accordance with the relevant provisions of applicable laws. The fund raising would be subsequently subjected to the approval of the shareholders. As stated earlier, SpiceJet got a new lease of life after the National Company Law Tribunal (NCLT) dismissed a plea filed by Willis Lease Finance to initiate insolvency proceedings against Spice Jet over unpaid dues. Since the matter was already sub-judice, the NCLT did not deep it was appropriate to get into the nuances of the case at this juncture.

SpiceJet still has a mountain of problems to deal with

However, Willis Lease Finance is not alone with proceeding against SpiceJet for delay in payment of lease rental dues. Already, three aircraft lessors have filed a total of four insolvency pleas against SpiceJet in 2023 pertaining to non-payment of dues. That is not all, Apart from the lessors, even a technology services provider has moved an insolvency plea against the airline for liquidation for recovery of dues under the provisions of NCLT.

The bigger challenges are about handling the operational disruptions. Many of its flights had to be cancelled in recent weeks and that normally does now go down too well with the fliers who expect greater consistency from airline companies. Normally, the airline companies get into trouble when the fuel supplies stop supply fuel on credit and insist on cash-and-carry system only. That just intensifies the cash crunch and that is something that must be best avoided by the airline. To add to the concerns of the fliers and other shareholders, the promoters of the company have also cut their stake in SpiceJet from 58.98% to 56.53%.

However, the immediate challenge for SpiceJet is getting the funding arranged and that will be like a lifeline. It is not surprising that the funding plans have been received well by the market. It is the sure shot answers to most of the problems that SpiceJet is facing in recent months.