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Business News/ Companies / News/  SpiceJet deal may get rare exemption by Sebi
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SpiceJet deal may get rare exemption by Sebi

Sebi maylet Ajay Singh, other investors off from making an open offer to Spicejet's minority shareholders

Sebi is set to apply sections 10 and 11 of the Substantial Acquisition of Shares and Takeovers (Sast) Regulations to exempt the investors from the requirement of an open offer, according to people close to the development. Photo: Abhijit Bhatlekar/MintPremium
Sebi is set to apply sections 10 and 11 of the Substantial Acquisition of Shares and Takeovers (Sast) Regulations to exempt the investors from the requirement of an open offer, according to people close to the development. Photo: Abhijit Bhatlekar/Mint

Mumbai: India’s market regulator may exempt Ajay Singh and other investors in SpiceJet Ltd from making an open offer to minority shareholders after they buy a controlling stake in the cash-strapped airline from owner Kalanithi Maran, according to two people familiar with the development.

The Securities and Exchange Board of India (Sebi) is set to apply sections 10 and 11 of the Substantial Acquisition of Shares and Takeovers (Sast) Regulations to exempt the investors from the requirement of an open offer, the people said on condition of anonymity.

The two sections of Sebi’s takeover norms allow an acquirer to skip an open offer under special circumstances.

SpiceJet said on 15 January that Maran and his KAL Airways Pvt. Ltd will transfer ownership, management and control of the company to Singh, a co-founder who sold his stake in the airline in 2010.

Media baron Maran, chief of Sun TV Network Ltd, holds a nearly 59% stake in the money-losing airline.

The deal will offer a lifeline to SpiceJet, where liabilities exceeded assets by 1,459.7 crore as of 30 September, according to the airline’s auditors SR Batliboi and Associates.

“Sebi will examine the matter once the government refers it to us, but this is a special case. So, the provisions under section 10 of the Sast regulations may be applied to grant an exemption from an open offer to the acquirers of shares in SpiceJet," said one of the two people cited above, who is directly familiar with Sebi’s policy processes in such matters. “It is a rare case and such exemptions will not be given by Sebi all the time for every such matter."

Sebi is likely to apply these provisions along with section 11 of Sast rules, which says the regulator may grant an exemption from an open offer in the interests of investors in securities and the securities market.

In the normal course, an entity is supposed to make an open offer while acquiring management control or over a 25% stake or voting rights in a listed firm.

The aviation ministry has approved the revival plan for SpiceJet and referred it to the stock market regulator to assess whether the plan will trigger an open offer or not.

On Friday, SpiceJet said the airline had received approval from the ministry for the so-called “scheme of reconstruction and revival for the takeover of ownership, management and control of SpiceJet" by Singh in accordance with the application made by the company.

“We have just secured a go-ahead for the revival plan for SpiceJet. The airline has opened its summer schedule that commences from March and goes through October. Regarding Sebi, we are talking to our legal team. I cannot offer a comment at this point of time," Singh said.

An aviation ministry official said there should not be an open offer in the case of SpiceJet, citing the larger interest of passengers and distress sale nature of the deal it is striking with investors. To be sure, Sebi is entitled to take the final call, he said, requesting anonymity.

Experts say Sebi would be justified in its action if it’s in the larger interest of the public, employees and shareholders.

When a company’s financials are under stress, the market regulator may take into account factors such as economic feasibility, impact on its customers and impact on the overall industry in deciding whether to insist on compliance with open offer regulations, said Raja Lahiri, a partner at Grant Thornton India Llp.

This would be on a case-by-case basis, he said, without commenting on SpiceJet’s situation. ​

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.

The ministry official said 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.

SpiceJet, 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.

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Published: 24 Jan 2015, 12:14 AM IST
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