New Delhi: Less than three months after India allowed foreign airlines to invest in Indian ones, Jet Airways (India) Ltd, SpiceJet Ltd and Kingfisher Airlines Ltd—all of which lost money in 2011-12—are looking for overseas partners in a move that could not just shore up their financials, but also reshape the industry.
But the road to clinching partnerships is full of uncertainties, especially for Jet, with its complex shareholding pattern, according to two senior aviation ministry officials.
Jet Airways is in talks with Etihad Airways for selling a stake of up to 24%, private equity and venture capital website VCCircle.com first reported on Friday.
SpiceJet said in a filing to the BSE on Monday that it was in talks with a few investors, but that these were of a preliminary nature. “Though (a) few investors have evinced interest in the company post government of India allowing FDI (foreign direct investment) in civil aviation sector to foreign airlines, it will be very premature to comment on the possibilities of any fresh equity issuance to such interested parties or confirm/deny names of any specific entity,” the airline said.
Kingfisher Airlines, which has been grounded by the aviation regulator pending a revival plan, said on 8 November that it was preparing a comprehensive plan to restart operations. In September, after the government allowed foreign airlines to invest in local airlines, owner Vijay Mallya said the company was in talks with potential investors.
The airlines have no other option, said one of the aviation ministry officials who, like the other, wanted to remain unidentified. That’s because “no Indian institution will lend them money for a while, so the only window they have is to raise foreign capital”, said this person.
The official said Jet has indicated it is in talks with Abu Dhabi-based Etihad. According to him, the discussions are still in the initial stage and any deal between the two could first take the form of a strategic alliance with a stake sale coming later.
Mint couldn’t independently confirm this. There has been no formal communication to the aviation ministry by Jet Airways.
“There has been wide-spread media speculation on the potential stake sale by Jet Airways. The company cannot comment on all such speculative reports,” a spokesperson for Jet Airways said in an email. “As and when we do undertake any strategic initiatives, Jet Airways will advise the concerned authorities and relevant exchanges accordingly.”
Jet Airways shares rose 11% to close at Rs.560.4 after scaling a 52-week high of Rs.598.80 in intraday trading on the BSE. The stake sale reports have also gained credence because Jet’s chairman Naresh Goyal has to reduce his holding in the airline to 75% from 80% in keeping with Indian rules.
Still, the deal is unlikely to happen in a hurry, said an aviation analyst.
“It’s going to take a while,” said the analyst, asking not to be named. “If Jet gets a valuation of $1.6 billion (around Rs.8,800 crore), then it might go through; otherwise I don’t see the promoter selling. Also, a 24% stake sale would invite an open offer which could result in the company getting delisted.”
Based on Monday’s closing price of the share on the BSE, Jet’s valuation is Rs.4,838.16 crore.
Indeed, the Jet deal is likely to be a complex one, especially when compared to possible deals at SpiceJet, GoAir and Kingfisher, largely because a majority of the airline—80%—is held by Goyal’s firm Tail Winds Ltd, registered in the tax haven Isle of Man.
Tail Winds was considered an overseas corporate body when the investment was made in the mid-1990s. The Reserve Bank of India has since ended the concept of overseas corporate bodies and investments by such entities are now considered foreign holdings, said a former Jet executive who didn’t want to be identified.
India allows 49% foreign investment into an Indian airline; it permits 100% investment in airlines by non-resident Indians (NRI). Goyal is a London-based NRI.
“The company is a foreign entity, but Goyal is not,” the first aviation ministry official said. He added that Goyal will have to transfer the company in his name and then sell shares to a foreign airline.
Indeed, this was the reason why India’s Foreign Investment Promotion Board disallowed a proposal by Jet Airways to raise $400 million through a qualified institutional placement in 2011 because this would have taken the foreign investment in Jet above the permissible 49% ceiling, the former Jet executive said.
And Goyal may not be keen on transferring the Tail Winds stake to himself or an NRI holding firm controlled by him because of some legal issues, he said. Mint couldn’t immediately ascertain what these issues were.
To be sure, Etihad can also buy directly into Tail Winds by getting the latter to issue fresh shares. This would bring down Goyal’s holding to about 66%.
This deal structure could have its own tax complications, said the second aviation ministry official. Jet Airways did not address questions sent to the airline on issues relating to the holding structure of the company.
If the Jet deal with Etihad goes through, it could spark a rush of investments, said an executive at a private airline who asked not to be identified. “Other big Middle Eastern airlines Emirates and Qatar will be drawn to India,” he added.
On Monday, shares of SpiceJet closed 13% higher at Rs.44.4 on the BSE, after touching a 52-week high of Rs.48.85. The exchange’s benchmark index, the Sensex, closed 0.16% higher at 18,537.01 points. Shares of Kingfisher gained 4.96% to end at Rs.14.40.
Meanwhile, Kuala Lumpur-based AirAsia denied it was talks with Indian carrier in a strong statement on Monday.
“AirAsia rejects the speculation surrounding our possible expansion in India,” AirAsia Group chief executive officer Tony Fernandes said. “These reports are completely incorrect. AirAsia has not submitted a bid for the Indian budget carrier, and has no intention of doing so.”
A Bloomberg report said on Monday that SpiceJet was in talks with AirAsia for a stake sale.
Mint reported on Monday that India’s civil aviation ministry is not too keen on issuing fresh licences to foreign airlines that want to start new airlines in India with local partners.
“The government wants the investment comes into existing airlines. If we give more airline licences, we will again go through the same situation. The existing ones may also close down,” the first government official said.