New Delhi: Kalanithi Maran, promoter of media group Sun TV Network Ltd, will increase his stake in the low-cost airline SpiceJet Ltd to 43% by October, in the process bringing in much-needed funds to the tune of about Rs 130 crore, a top company executive said.
The infusion and stake increase will happen through the issue of convertible preference shares at a premium of 50% to the current share price of Rs 24, according to Neil Mills, SpiceJet’s chief executive officer.
“It shows the promoter has confidence in the business case,” added Mills, referring to the airline’s fast expanding footprint in the so-called regional market, involving flights to and from tier II and III cities across India.
Bigger pie: Kalanithi Maran. The issue of preference shares will bring in much-needed funds to the tune of Rs 130 crore for the carrier. Photo by HT.
Ahead of its 2010 sale to Maran’s KAL Airways Pvt. Ltd, the airline tried to raise money through a preferential issue of shares, and, after that failed, through a sale of shares to private equity investors and an issue of global depository receipts.
Since taking over the airline, Maran has pledged some of the shares he acquired as part of an effort to raise money to fund operations even as losses have increased. Mint couldn’t ascertain either the number of shares pledged or the amount raised.
SpiceJet registered a profit of Rs 101.16 crore in 2010-11, the only listed Indian carrier to do so that fiscal year, but has since lost money, owing to high fuel prices and growing competition. The company lost Rs 71.96 crore in the three months to 30 June compared with a net profit of Rs 55.21 crore in the year-ago period.
The state of the business has also affected the fund-raising plans of other airlines.
Vijay Mallya-run Kingfisher Airlines Ltd and Naresh Goyal-run Jet Airways (India) Ltd have also announced plans to raise $500 million and $400 million, respectively, although there hasn’t been much development on either front.
Jet Airways raised about Rs 500 crore from a land sale earlier this year.
Kingfisher made a loss of Rs 1,027 crore in 2010-11, while Jet Airways, together with its subsidiary JetLite, lost Rs 85.84 crore.
As part of its regional strategy, SpiceJet is inducting 15 Bombardier Q400s into its fleet with most of the aircraft being bought with the help of financing from Export Development Canada. These will connect small cities with Hyderabad, the first hub SpiceJet has identified, and will add to the airline’s existing fleet of Boeing Co. 737 aircraft. SpiceJet currently has more than 202 daily flights to 21 cities with around 30 aircraft, giving it a 14% share of the domestic market.
Vijay Nara, analyst at Mumbai-based brokerage Fortune Financial Services (India) Ltd said the funds generated by the issue of preference shares will help, but added that other challenges remain. He listed the regional expansion and “recent news of about 100 of its cabin and cockpit crew leaving”.
Mills said the airline’s senior managers have been meeting employees, including pilots, to understand their problems in an attempt to solve them, build confidence and reduce attrition.
Shares of SpiceJet closed at Rs 24 each on Monday, down 2.83% on the Bombay Stock Exchange on a day the exchange’s benchmark Sensex fell 2.17% to 16,501.74 points. The shares are down 68% from their 52-week high of Rs 76.85, partly because of the performance of the airline and the market as a whole, and partly because of negative sentiment arising from investigations into allegations that Maran’s brother Dayanidhi Maran, a former Union minister, misused his office to help the cause of Sun TV.