BackWill Sebi do a SpiceJet in clearing the Jet-Etihad deal?
An open offer exemption would only be possible if the Jet-Etihad deal formally comes to Sebi for approval
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Mumbai: Beleaguered airline Jet Airways (India) Ltd will be able to bring on a new majority investor bypassing an open offer if the civil aviation ministry or the directorate general of civil aviation (DGCA) says it is needed to save the airline, according to two people with direct knowledge of the matter.
Mint had reported on Monday that Etihad Airways PJSC may take control of Jet Airways by securing 49% stake in it. This is one of the distress resolution formulas submitted to the lenders. Etihad Airways holds 24% stake in the Naresh Goyal-promoted airline.
“Under special circumstances, Sebi can give an exemption from an open offer," said one of the two people mentioned above.
A change in control requires an open offer to minority investors, according to the takeover code. However, the market regulator can use section 10, 11 of the Substantial Acquisition of Shares and Takeovers (SAST), or the takeover code, which allows companies an exemption under special circumstances, he said.
“The special circumstances under these sections are references from the nodal ministry or competent authority which in this case would be the civil aviation ministry or DGCA, the company is sick or distressed under relevant law, and the exemption is in interest of investors," said the second of the two people mentioned above.
Section 10 of the Sebi takeover code allows exemption if it is made under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, or any statutory modification or re-enactment. Section 11 empowers the Sebi board to give exemptions if it deems it a fit case in the interests of investors in securities.
These sections are routinely used to give exemptions to public sector banks and undertakings when the government recapitalises them. However, it was used in the rare case of a private airline in 2015 when Ajay Singh and other investors of SpiceJet Ltd were exempted from making an open offer to minority shareholders after they bought a controlling stake in the cash-strapped airline from owner Kalanithi Maran.
The open offer exemption would only be after the deal formally comes to Sebi for approval. So far, none of the stakeholders have confirmed the developments or made any public announcement to that affect.
A spokesperson for Etihad Airways declined to offer any comments when asked whether they are seeking an open offer exemption. A spokesperson for Jet Airways said the airline was discussing with shareholders a resolution plan with the lead lender State Bank of India.
The plan contemplates options on the debt-equity mix, proportion of equity infusion by stakeholders and change in the airline’s board.
Jet has been struggling for the past three quarters with losses of more than ₹ 1,000 crore each since March 2018. It has a debt of ₹ 8,052 crore as of September.
Jet Airways also defaulted on its debt repayment on 1 January forcing ratings agencies such as Icra Ltd to cut the long-term rating on loans and bonds issued by the private airline from C to D.
If Etihad gets this exemption, it would be the second time that it escaped making an open offer to minority investors of Jet Airways. In 2014, Sebi had ruled that Eithad’s 24% acquisition of Jet could not be construed as control.
J.N. Gupta, a former executive director of Sebi and founder of Stakeholder Empowerment Services said that this does seem like a fit case for an exemption from open offer.
“In normal course, there should not be any exemption from any law but here is a situation that the equity may become zero if aid and exemptions are not granted. The requirement is for all the regulators to assess the situation and take a holistic view. Conditional exemption should be given so that we are aware of who the investors are," said Gupta.
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