SpiceJet: Marans to transfer stake to Ajay Singh
Singh is partnering with a unit of JPMorgan Chase and Co. to sew up a deal to save SpiceJet
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Mumbai: SpiceJet Ltd said on Thursday that its principal shareholder and promoter Kalanithi Maran and his KAL Airways Pvt. Ltd will transfer ownership, management and control of the company to Ajay Singh, a co-founder who sold his stake in the airline in 2010.
The proposal, being considered by SpiceJet’s board, was disclosed by India’s second-largest low-fare airline in a statement to BSE.
Financial details of the deal, part of a plan to turn around the cash-strapped airline, weren’t revealed. A civil aviation ministry official who declined to be named said the ministry had been informed that Rs.1,500 crore will be invested in the process, but details hadn’t been communicated to it as yet.
SpiceJet’s chief operating officer Sanjiv Kapoor on Thursday met civil aviation ministry officials in New Delhi to submit the ownership transfer plan.
“It is a positive development for SpiceJet. After the paperwork and approvals from civil aviation ministry, more big steps will follow to turn around SpiceJet. This is just a change of ownership,” Kapoor said in a phone interview.
He hinted that there will management changes and joked that “as of now I am there”.
Kapoor said he cannot set a timeline on when cash will flow in, but added that fund infusion was the whole purpose of the exercise.
Shares of SpiceJet rose 3.04% to Rs.18.65 on the BSE on a day the exchange’s benchmark Sensex gained 2.66% to close at 28,075.55 points. The deal was announced after trading hours.
The deal will offer a lifeline to SpiceJet, in which billionaire media baron Maran, owner of Sun TV Network Ltd and KAL Airways, holds nearly 59%, assuming the full conversion of warrants and securities, according to BSE data.
The airline made a loss of Rs.245.6 crore (excluding one-off expenses) in the three months ended 30 September, down from Rs.559.5 crore in the year-ago period.
The airline’s auditors, S.R. Batliboi and Associates, have said that as of 30 September, SpiceJet’s liabilities exceeded its assets by Rs.1,459.7 crore.
The no-frill carrier’s dues to foreign and Indian vendors, airport operators and oil companies grew from Rs.990 crore to Rs.1,230 crore between 24 November and 10 December, according to data provided by the airline to the civil aviation ministry.
The airline’s dues to foreign vendors, including aircraft lessors and maintenance, repair and overhaul facilities, rose from Rs.624 crore to Rs.742 crore in the same period.
S.L. Narayanan, group chief financial officer of SpiceJet’s parent Sun Group, said the group will remain a minority shareholder in the airline.
Maran’s stake is worth around $102 million at the current market price. He has invested around Rs.1,300 crore in the airline, a little over half of which went towards acquiring it.
Narayanan said more details would be announced after the airline secures necessary approvals from the civil aviation ministry, and the induction of new investors would be handled by Ajay Singh.
“This is good news for both SpiceJet and aviation industry. It appears that Singh has been able to organize necessary investment to revive the airlines,” said Harsh Vardhan, chairman of New Delhi-based Starair Consulting.
“In many ways, time is opportune. With falling fuel prices and likely improvement in fundamentals of the Indian economy, airlines industry is aspiring for better days. I am particularly happy for SpiceJet employees, who were facing an uncertain future; now they can dedicate themselves to rebuilding the organization,” Vardhan said.
“It’s a welcome development. Failure of an airline with 17% market share is the last thing our beleaguered aviation sector needs. SpiceJet’s revival is good for passengers, employees, lenders, suppliers and the industry as a whole,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.
“Ajay Singh will have to rework his fleet, network and people strategy. The airline has excellent slots, brand and staff. Given the right support, the airline can rebuild itself over the next 8-12 months into a lean, mean and profitable airline,” he added.
In the last week of December, SpiceJet outlined a turnaround plan to the government, centred on a proposed $200 million investment by Singh.
On 5 December, the aviation ministry asked SpiceJet, which was raising some of its working capital through advance ticket sales, to stop issuing tickets more than a month in advance. The restriction came after the airline cancelled around 1,800 flights in December as it shrank its fleet because of financial reasons. The ministry’s aim was to prevent a crisis but it precipitated one by drying up the airline’s source of funds.
On 16 December, SpiceJet had to briefly ground its fleet for more than 10 hours after oil companies refused to fuel aircraft. The aviation ministry has since permitted SpiceJet to accept bookings till March-end.
SpiceJet, which began life 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 has proven difficult for most major airlines.
Indian airlines, most of whom are loss-making, have struggled with high operating costs, including fuel, and fierce competition that has limited fare increases.
An anticipated economic recovery in 2015-16, and a more than 50% fall in the price of crude, and an almost 16% one in that of jet fuel, in India, since June last year has, however, made the business more attractive.
On Wednesday, a senior civil aviation ministry official said that Singh and JPMorgan’s unit will submit an investment plan before the capital markets regulator Securities and Exchange Board of India detailing a fresh infusion of funds and possible change in ownership and management.
Singh and other potential investors are also seeking clarity on the applicability of a possible open offer and takeover code-related guidelines after their investment in SpiceJet.
A person familiar with the matter said the deal is unlikely to trigger an open offer to minority shareholders, without disclosing the structure of the deal and financial details. This person didn’t want to be named.
Indian rules say that an open offer is triggered when a stake of 25% or more is acquired in a company or if an acquirer directly or indirectly (through subsidiaries or persons acting in concert) acquires control of an entity, irrespective of the size of the stake or voting rights.
Tarun Shukla in New Delhi and Reuters contributed to this story.