BackSpiceJet renews efforts to sell a minority stake
Airline in fresh talks with PE firms, a foreign airline and an Indian conglomerate to raise funds for expansion
Premium(Ramesh Pathania/Mint)
Mumbai: India’s second largest low-fare airline SpiceJet Ltd is in talks with private equity (PE) funds, an Oman-based sovereign wealth fund and foreign airlines as well as an Indian conglomerate for selling a minority stake to fund its expansion plans.
SpiceJet has started fresh rounds of talks, but is yet to finalize any deals, according to three persons close to the development.
“There are a few Middle-Eastern funds, including Oman Investment Fund, currently talking to the company. In all likelihood, it will be a strategic investor who will do the transaction, with backing from PE investors," said a person directly involved in the talks, who did not want to be identified. “The deal is not near a closure right now. It will take time."
In response to a mail sent by Mint to Oman Investment Fund, its external communication team said, “We have no comment."
S.L. Narayanan, group chief financial officer, Sun Group, the parent company of SpiceJet, did not offer any comment for the story.
On 29 July, the Foreign Investment Promotion Board allowed Jet Airways (India) Ltd to sell a 24% stake in itself to Etihad Airways PJSC for $379 million, subject to conditions. Mumbai-based Jet Airways is set to become the first beneficiary of a policy change that allowed foreign airlines to invest in domestic ones.
“SpiceJet is talking to many investors, including Indian companies and West Asian funds. Few foreign airlines are keen. But nothing has been concluded," said one those person cited above.
Experts said investment is critical for SpiceJet as the airline needs financial muscle to compete with Jet Airways and the potential threat from the proposed AirAsia India, which plans to start operations by the end of the year from Chennai, where SpiceJet is headquartered.
It is not certain when the airline will conclude a deal with fund houses as SpiceJet has been in talks with several airlines and PE firms since September 2012. For instance, Japan’s All Nippon Airways Co. Ltd, had been in talks with SpiceJet, but these have been shelved.
The development comes amid the resignation of Neil Mills as chief executive officer of SpiceJet. He quit 18 months before his contract was due to end. No successor has been named as yet.
A section of the media had reported that Dubai’s Emirates Airline and Singapore-based low-fare airline Tiger Airways Singapore Pte Ltd were in talks with SpiceJet for picking up a minority stake. While Emirates denied any such move, Tiger Airways said it will not comment on market rumours, adding that the airline was exploring “various avenues of business development, including potential inter-line arrangements with other airlines, as regular course of business".
Senior analysts Rashesh Shah and Sneha Agarwal at domestic brokerage ICICI Securities Ltd wrote in a 6 August report that any strategic tie-ups with foreign airlines remain a key positive trigger for SpiceJet. Currency weakness and competition from other airlines pose a threat, it said.
“We believe with FDI (foreign direct investment) policy, valuations will be driven by long-term business opportunity for the sector, considering the low penetration of aviation market in India. The increasing market and relative strong balance sheet should re-rate the valuation for the company," wrote Vikram Suryavanshi, a senior analyst with domestic brokerage Antique Stock Broking Ltd, in a 6 August report.
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