BackAjay Singh may infuse less money into SpiceJet than planned
The current promoters are reluctant to dilute the equity stake at this stage of the airline's turnaround plan and may infuse around Rs300 crore in May
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Ajay Singh, the new promoter of SpiceJet Ltd, may infuse less money into the airline than he had earlier planned because of better-than-anticipated cash flows from operations, according to two people familiar with the development.
India’s second largest low-fare airline was expected to get an infusion of ₹ 500 crore in April to recapitalize the company and fund expansion.
The current promoters are reluctant to dilute the equity stake at this stage of the airline’s turnaround plan and may infuse around ₹ 300 crore in May, the two people added. Neither wanted to be identified.
Singh, a co-founder of SpiceJet who had exited the airline in 2010, is back in control after buying out the entire 58.46% stake of Kalanithi Maran and Kal Airways Pvt. Ltd on 23 February. Singh promised to invest at least ₹ 1,400 crore in the airline as a lifeline to the cash-strapped SpiceJet.
“The promoter is talking to JP Morgan Chase and two other domestic investors and reviewing the current cash requirements. The cash flows are sufficient enough to take care of the current needs as the airline is doing much better than anticipated. The dues are getting settled," said one of the people cited above.
A SpiceJet spokesperson declined comment.
Shares of SpiceJet lost 0.25% to close at ₹ 19.75 each on Thursday on the BSE, while the benchmark Sensex lost 0.56% to close at 27,735.02 points.
Singh and three new directors are expected to come on board of the airline next month.
On 5 December, the aviation ministry asked SpiceJet, which was raising some of its working capital through advance-ticket sales, to stop the sale of tickets more than a month in advance of the travel date.
That restriction came after the airline cancelled around 1,800 flights in December, following a reduction in its fleet size, largely owing to financial reasons.
However, the restriction on advance sales precipitated a crisis by drying up SpiceJet’s source of funds.
In December 2014, the airline briefly grounded its fleet after oil firms refused fuel supplies until it paid its dues. The aviation ministry later lifted the restriction on advance bookings.
A senior analyst at a domestic brokerage said the airline will take at least six-eight months to stabilize and it may require more cash than what was anticipated.
“Promoters will have to dilute equity in the short term to keep the airline flying. Indeed, the cash requirements have come down considering the size of operations at present. But it may need more money to scale up and compete," the analyst, who closely tracks the airline and is not authorized to speak to reporters said.
Separately, Bharatiya Janata Party leader Subramanian Swamy has written a letter to Prime Minister Narendra Modi seeking a probe into the SpiceJet buyout.
Swamy told CNBC-TV18 television channel that he had raised question on Singh’s source of funds and the capital market regulator’s move to exempt the new promoter from making an open offer despite acquiring 58% in the airline.
“We are governed by the laws of the country like Companies Act, the Sebi (Securities and Exchange Board of India) Act, etc. Now, when a person who has no known networth and seems to have been in a near state of bankruptcy is able to acquire 58.1% of the shares and the valuation of it is not made public," Swamy told the channel.
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