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SpiceJet, Modi call truce; to sell 11.5 mn shares

SpiceJet, Modi call truce; to sell 11.5 mn shares
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First Published: Wed, Jun 25 2008. 12 05 AM IST
Updated: Wed, Jun 25 2008. 12 05 AM IST
New Delhi: SpiceJet Ltd, India’s third largest low-cost airline by passengers flown, plans to sell around 11.5 million shares, equivalent to about 5% of its equity capital, on the stock markets following a settlement with the SK Modi business group, a majority owner of an earlier avatar of the carrier, ModiLuft, according to a company executive.
The money raised from the share sale, under an order of the Delhi high court in a case related to issue of equity to the Modi group in ModiLuft without payment of cash, will first be deposited in a court-mandated account. The court will then decide on how the proceeds of the sale—around Rs35 crore given that SpiceJet’s current market capitalization is approximately Rs700 crore—will be appropriated between SpiceJet and the Modi group.
“We cannot square up the transaction in the books (until) we sell those shares, get it into to the court’s account... If anything has to (be) exempted, it is...and then we receive whatever is there,” a senior executive at SpiceJet said in a recent interview. He cannot be named because he is not authorized to speak with the media.
“These (11.5 million) shares will be offered in the open market. These shares will not be fresh shares... It will be one shareholder selling to another,” this executive said, adding that SpiceJet has a “lien on these shares” and after proceeds from the share sale are deposited into the court-nominated account, the court will next “specify how to apply that (lien), square up all assets and liabilities and clean up the books”.
The shares in what was earlier called ModiLuft were issued to the Modi group at Rs40 a share and if the current share sale realizes more than that, the difference will go to that group. But that is unlikely to happen considering the current share price of the airline, struggling under record aviation fuel prices like every other carrier in the business in India, is at under Rs30.
The airline’s chief financial officer Parthasarthy Basu said SpiceJet had “not planned” the share sale out yet.
Asked if this could be the best route to recover the disputed money relating to issue of equity, he said, “Probably, yes.”
Yash Kohli, a spokeswoman for Modi, said she couldn’t comment on the matter and directed Mint’s queries to the group’s lawyer on the matter, Neeraj Sharma, a senior partner at New Delhi legal firm Dua Associates. Sharma said in a text message from his cellphone that he had no comment to offer on the matter.
Modi, who has said in the past that he owns around 17% in SpiceJet, is travelling in the US and could not be reached for comment. A call to a US mobile phone number his office provided was not answered.
The proposed sale in SpiceJet dates back to Modi’s stake in ModiLuft Ltd, a joint venture between the Modi group and Lufthansa AG that operated in the mid-1990s. That airline was acquired—primarily for its aviation licence—early this decade by London businessman Bhupendra Kansagra and renamed Royal Airways, with more than 60% ownership vesting with the buyer.
The company was then named SpiceJet and started operations in May 2005.
Other liabilities dating back to ModiLuft, including debt, interest, pending lease rentals and sundry dues amounting to more than Rs30 crore were separately qualified by the company’s auditors Walker Chandiok and Co.
The senior SpiceJet executive quoted earlier said the company’s directors did not believe they needed to provision for these liabilities against profits but had informed the stock exchanges of the auditor qualification.
Without the provisions, the net losses of SpiceJet in the first nine months of 2007-08 amounted to about Rs10 crore. The company was able to keep its losses low by selling planes and leasing them back for operations. Executives at the airline earlier told Mint that the company expects to make losses of up to Rs100 crore in the March quarter.
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First Published: Wed, Jun 25 2008. 12 05 AM IST