Mumbai: About half a dozen fund houses have submitted proposals for a possible investment in India’s second largest low-fare carrier SpiceJet Ltd.
The proposals, also known as term sheets, come at a time when some of the airline’s investors are looking to exit their investment, said two persons with knowledge of the development. The Gurgaon-based airline, which is listed on the stock exchanges, is currently holding roadshows to raise $75 million (Rs332.3 crore) by selling new shares ahead of launching international flights.
“Including two very big financial investors, the airline has received good response for proposals for potential investment. More players may submit their term sheets in the coming days,” one of the executives said on condition of anonymity.
Graphic: Ahmed Raza Khan/Mint
The airline’s fund-raising coincides with some of its strategic investors separately talking to Indian companies and financial institutions to exit from the airline. “The airline in its capacity is talking to potential investors, but at the same time several investors are talking to various companies and financial institutions at their own level. But nothing has been finalized as yet,” the second executive said.
In early February, the Dubai government’s investment arm Istithmar PJSC, which was an anchor investor in SpiceJet, sold bulk of its 13.39% stake to a clutch of domestic funds that included DWS Invest BRIC Plus Fund, Reliance Mutual Fund and Birla Mutual Fund. The stake sale came at a time when the airline had mandated IDFC-SSKI Securities Ltd and Edelweiss Capital Ltd to find new investors for a fresh round of fund-raising.
SpiceJet’s chief executive officer Sanjay Aggarwal was not available for comment and a spokesperson declined to do so.
Tata group holds around 6% while Wilbur L. Ross, who specializes in investing in and restructuring distressed firms, holds 32% equity. Ross injected $80 million into SpiceJet in July 2008 through his eponymous private equity fund and persuaded investment bank Goldman Sachs to invest $20 million at the same time.
According to the second executive quoted earlier, Ross, as well as UK-based Bhupendra Kansagra, who holds equity in SpiceJet through Royal Holding Services Ltd, and a few others are looking to exit the carrier.
However, Kansagra denied any such move, saying he plans to remain invested with the airline. “I have stayed invested for a decade now, I am not selling,” he told Mint.
“In the case of fund-raising, we are going ahead with the programme and I cannot comment on the details,” added Kansagra, whose shareholding is currently at 12.89%.
The India representative of WL Ross and Co. declined to comment.
According to a 26 March report by Rashesh Shah, an analyst at domestic brokerage ICICI Securities Ltd, SpiceJet has foreign currency convertible bonds (FCCBs) worth $78 million on its books that are due for redemption in December.
“Istithmar, a UAE-based investment house, holds FCCBs worth $12 million while the rest is held by WL Ross. SpiceJet has also issued warrants worth Rs60.61 crore (convertible to equity shares at Rs25 per share) with a conversion date in June 2010,” he wrote.
Shah also predicted that SpiceJet would proceed with full conversion of its warrants and around 40% of its FCCBs into equity shares during fiscal 2011 to increase its foreign shareholding to 48.4% from the current 27.5%, as well as to cut debt. The foreign shareholding would, however, remain within the 49% ceiling mandated by the government.
Significantly, foreign shareholding in the airline decreased to 27.5% in February after Istithmar sold its stake.
Shah added that “…the conversion of FCCBs will help SpiceJet to reduce its debt (to Rs348.7 crore in FY12 from Rs488.8 crore in FY09). This, in turn, will strengthen its balance sheet (positive net worth of Rs81.4 crore in FY11 compared to negative net worth of Rs 429.4 crore in FY09)”.
SpiceJet’s shares on Monday fell 1.78% on the Bombay Stock Exchange to close at Rs57.90 each. The benchmark Sensex rose 0.29% to 17,745.28 points.