SpiceJet seeks to raise $75 million

SpiceJet seeks to raise $75 million

Mumbai: India’s second largest low fare carrier SpiceJet Ltd is seeking to raise $75 million (Rs345 crore) by selling new shares, according to two senior company executives, as the company prepares to start international services.

SpiceJet’s chief executive officer Sanjay Aggarwal confirmed the development, without divulging details.

“We are in the process of raising capital anywhere between $50 and $75 million," Aggarwal said. “But it is too premature to comment about the fund raising details."

The top management of the airline, from which anchor investor and Dubai government’s investment arm Istithmar PJSC exited early this month, has met a clutch of domestic funds including Reliance Capital Asset Management Ltd, Birla Sun Life Insurance Co. Ltd, and Axis Asset Management Co. Ltd, said one of the executives, who asked not to be identified as he’s not authorized to speak to the media. Executives at the three funds confirmed the meetings.

IDFC-SSKI Securities Ltd and Edelweiss Capital Ltd are helping SpiceJet find an investor, he added.

The carrier will become eligible to offer overseas flights as it completes five years of operations—a prerequisite for flying internationally according to Indian rules—in May this year.

On 5 February, Istithmar sold most of its 13.39% stake to domestic funds and foreign institutional investors, providing room for another foreign investor to come in. The current foreign holding in SpiceJet is around 30%, less than the 49% limit prescribed for Indian airlines. However, the cap would be breached if all of its foreign currency convertible bond (FCCBs) holders decide to convert the instruments.

Aggarwal said the carrier has some limitations in bringing in another overseas investor and did not elaborate whether the firm is in talks with foreign funds in the context of Istithmar’s exit.

Istithmar sold its stake through bulk deals in the open market, to DWS Invest BRIC Plus Fund, Reliance Mutual Fund and Birla Mutual Fund, according to data provided to the Bombay Stock Exchange (BSE). The Istithmar stake sale comes in the wake of the debt repayment crisis faced by its parent company Dubai World.

Tata Group and Wilbur Ross remain invested in the airline, which has a 12.2% share of the Indian domestic market.

Tata Group holds about 6% while Ross, a master of distress buyouts, holds 32% worth equity, if he converts his FCCBs. Ross injected $80 million into SpiceJet in July 2008 through his New York-based private equity fund WL Ross and Co. Llc and persuaded private equity firm Goldman Sachs to invest $20 million in the carrier at the same time. It is not clear whether the new shares will go to a new investor or be picked up by existing shareholders.

“Domestic funds have already gobbled up SpiceJet’s equity when Istithmar sold in the open market. An investment decision at this point looks unlikely from the domestic funds as they would ideally wait for the Union Budget" on 26 February, said Mahantesh Sabarad, senior analyst at domestic brokerage Centrum Broking Pvt. Ltd. “Moreover, other carriers such as Jet Airways and Kingfisher, along with SpiceJet are in the market for raising funds totalling up to $500 million. I don’t think there is an appetite for such large amounts to be invested in aviation stocks at this point of time."

Shares of SpiceJet fell 3.67% on BSE on Wednesday to close at Rs53.85 apiece.

Other domestic airlines are also pitching shares to domestic funds as Indian aviation recovers from a slump. The country’s largest airline, Jet Airways (India) Ltd, is in the process of selling new shares to large investors through a qualified institutional placement for $200 million in the first phase of a fund-raising plan.

Kingfisher Airlines Ltd is considering a plan to raise as much as $175 million selling shares and global depository receipts to repay debt.