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Business News/ Companies / News/  SpiceJet to raise Rs1,500 crore via stake sale
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SpiceJet to raise Rs1,500 crore via stake sale

SpiceJet will allot 3.75 mn preference shares worth Rs375 crore to Kalanithi Maran and Kal Airways

SpiceJet’s board has also decided to issue equity shares or any instrument convertible into equity shares via GDRs, ADRs or foreign currency convertible bonds for an aggregate amount not exceeding Rs1,500 crore to any person. Photo: MintPremium
SpiceJet’s board has also decided to issue equity shares or any instrument convertible into equity shares via GDRs, ADRs or foreign currency convertible bonds for an aggregate amount not exceeding Rs1,500 crore to any person. Photo: Mint

Mumbai: The board of SpiceJet Ltd on Friday approved the sale of shares worth 1,500 crore in the company after a deal was reached between current majority owners Kalanithi Maran and Kal Airways Pvt. Ltd, and co-founder Ajay Singh who is leading a rescue plan.

The cash-strapped airline will increase its authorized share capital to 2,000 crore, comprising 1.5 billion equity shares of 10 each and 5 million non-convertible redeemable preference shares of 1,000 each.

The firm, which has been struggling to pay bills and briefly grounded its aircraft in December, will allot 3.75 million preference shares worth 375 crore to Maran and Kal Airways.

SpiceJet also approved the sale of the entire shareholding of its owners to Singh, who had exited the firm in 2010. It did not disclose financial details or conditions attached to the sale of the 58.48% stake by Maran and his group firm. The billionaire promoter of Sun Group had invested around 1,300 crore in the airline, a little over half of which went towards acquiring it.

“On the face of it, Marans are transferring their stake to Singh very cheap. However, it is a private transaction between two promoters and we don’t know what are the conditions they have agreed upon," an executive with a domestic brokerage firm said, requesting anonymity. “But Marans will infuse 375 crore as exit cost."

Maran, Kavery Kalanithi and S. Natrajhen, managing director, resigned from the board of the company with immediate effect following the change in the ownership, SpiceJet said in a filing to BSE on Friday. The airline has proposed changing its registered office from Chennai to Delhi.

SpiceJet said on 15 January that Maran and Kal Airways will transfer ownership, management and control of the company to Singh, who is expected to team up with JPMorgan Chase and Co. and a local investor, and is expected to invest at least 1,400 crore by the end of April.

The deal will offer a lifeline to SpiceJet, where liabilities exceeded assets by 1,459.7 crore on 30 September, according to its auditors, SR Batliboi and Associates.

Singh and SpiceJet are awaiting final clearance from the capital market regulator.

SpiceJet said the board has decided to issue equity shares or any instrument convertible into equity shares via global depository receipts, American depository receipts or foreign currency convertible bonds for an aggregate amount not exceeding 1,500 crore to any person or persons, whether or not they are shareholders of the company.

“This would mean SpiceJet can issue these securities to Singh and team members," the executive quoted earlier said.

The airline said it will issue up to 3.75 million non-convertible cumulative redeemable preference shares of 1,000 each to Maran and Kal Airways on a preferential basis. The board also approved increasing authorized share capital to 2,000 crore divided into 1.5 billion equity shares of 10 each and 500 million non-convertible cumulative redeemable preference shares of 1,000 each.

SpiceJet did not disclose the agreement between the promoters and Singh, and details of increasing its capital base or details of issuance of equity instruments.

Singh and S.L. Narayanan, group chief financial officer at Sun Group, did not respond to phone calls seeking comment.

The airline will need to focus on capitalization milestones going forward, said Kapil Kaul, South Asia CEO of consultancy firm Capa Centre for Aviation.

“SpiceJet requires $250 million immediately to bring stability and another $200 million to fully fund a turnaround. Securing funding is most critical for SpiceJet as any further delays will be costly," Kaul said.

SpiceJet made a loss of 245.6 crore, excluding one-off expenses, in the quarter ended 30 September, down from 559.5 crore in the year-ago period. According to the aviation ministry, the airline has dues in excess of 1,200 crore and investors will have to infuse more funds to restore its operations to normal.

SpiceJet reported its biggest ever loss of 1,003 crore in 2013-14.

The firm, which started operations in 2005, employs around 5,000 people and operates 230 flights a day in a market where demand for air travel is rising rapidly, but making a profit is difficult for most airlines due to intense competition and high operating costs.

SpiceJet was one of the better-run airlines before the Sun Group took over, according to Bharath Mahadevan, an independent aviation consultant.

“Suddenly, they lost their way with pricing and fleet type. So Singh and others can definitely revive it, especially in the time of low oil prices," Mahadevan said.

He was referring to discounted fares and flying different types of planes when other low-fare airlines generally fly a single type of aircraft. In 2011, SpiceJet altered its business model by inducting 15 78-seater Bombardier Q400 turboprop aircraft to connect small cities.

On 5 December, the aviation ministry asked SpiceJet, which was raising some of its working capital through advance ticket sales, to stop issuing tickets more than a month in advance. The restriction came after the airline cancelled around 1,800 flights in December as it shrank its fleet because of financial reasons.

The ministry’s aim was to prevent a crisis, but it precipitated one by drying up the airline’s source of funds. On 16 December, SpiceJet had to briefly ground its fleet for more than 10 hours after oil companies refused to fuel aircraft. The aviation ministry has since permitted SpiceJet to accept bookings till the end of March. Later, the ministry lifted any such restrictions on advance bookings.

On Friday, shares of SpiceJet gained 1.83% to 22.20 each on BSE, while the benchmark Sensex lost 1.68% to close at 29,182.95 points.

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Published: 30 Jan 2015, 09:22 AM IST
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