PE funding: TPG may land Air Deccan deal

PE funding: TPG may land Air Deccan deal
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First Published: Thu, Apr 19 2007. 12 32 AM IST
Updated: Thu, Apr 19 2007. 12 32 AM IST
Deccan Aviation Ltd, the company which operates Air Deccan, is closing in on between $75-100 million (Rs315-420 crore) in funding from private equity (PE) investors led by US buyout fund TPG Inc. in the next two weeks, according to officials both at the airline and the bankers involved in the negotiations.
But the negotiations, while at a pretty advanced state, are not final yet, said G.R. Gopinath, the managing director and founder of Air Deccan, which is India’s biggest low-cost airline and among the top three carriers by market share.
“As of now, things are still being discussed,” he said. “What we are trying to see is what kind of money people are willing to invest and under what kind of conditions.”
Mumbai-based Edelweiss Capital, a financial services firm that handled the PE fundraising for SpiceJet Ltd in January, will provide Air Deccan officials with a shortlist in the next two weeks, according to a senior official at Edelweiss, who asked not to be named because of company policy. That shortlist will include at least three strong potential candidates, including the Fort Worth, Texas-headquartered TPG, according to an Air Deccan official who helps oversee financial matters.
TPG, as it is commonly known, has more than $30 billion of capital that it manages for investors both in the US and internationally, and was widely expected to invest about $30 million in New Delhi-based SpiceJet before the deal fell through in January. (SpiceJet eventually raised $65 million from the Tata Group and Goldman Sachs.)
TPG will also own 15% of Australia’s national carrier, Qantas, after a $8.6 billion PE takeover is completed later this year. Puneet Bhatia, a senior advisor for TPG based in India, declined to confirm the progress of the negotiations with Air Deccan, but had said earlier that TPG’s interest in the Indian aviation scene is quite strong.
Ramki Sundaram, the finance director for Air Deccan, said the fundraising would entail some form of equity dilution for Deccan Aviation, which has 98 million shares and a market capitalization of more than Rs1,067 crore.
“Our thought is very clear: what we want to ensure is that whoever provides us funds and joins hands with us should have goals consistent with ours,” he said. “We want to develop a robust air transport infrastructure in India, and to maximise shareholder value.”
Those shareholders in Deccan Aviation—the largest of whom are Western India Trust (10.8%), which is an ICICI Venture Ltd-run fund, and Reliance Capital (4.7%)—have seen their shareholdings in the company take a beating. Shares of Deccan Aviation, which barely scraped through during its March 2006 initial public offer (IPO) of Rs148 because of a stock- market crash during the same week, have shed almost 24% of its value and at one point dropped to Rs64.
But that low share price, combined with the airline’s 20% market share and double-digit growth rate, would make it attractive to PE investors. In effect, a PE investor picking up a stake in Deccan Aviation today would get a lot more equity in return for his investment than he could if the shares were trading closer to the issue price. The stock closed at Rs108.70 on Wednesday.
In comparison, many analysts think that the shares for Jet Airways (India) Ltd, which seems to have abandoned its quest for $400 million in PE funding, are trading too far above their target price. Citigroup’s Jamshed Dadabhoy, for instance, has set a target price of Rs390, far below its IPO price of Rs1,100 and its closing price of Rs637.30 on Wednesday. Jet Airways announced this week that it will revive a year-old plan of raising those funds through sales of its stock instead.
India’s airlines, coming off a mostly loss-making financial year, are increasing looking to PE and other fundraising options to finance ambitious growth plans.
Deccan Aviation raised about $40 million in 2005 by selling a 26% stake to ICICI Venture and US-based Capital International, and then raised $100 million in December 2006 from Cayman Islands-based Investec by selling away the right to purchase any of the airline’s yet-to-be delivered 55-plus Airbus jets.
United Breweries-owned Kingfisher Airlines Ltd, which has about a 10th of the Indian passenger market, is looking for $110 million in PE funding.
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First Published: Thu, Apr 19 2007. 12 32 AM IST
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