Etihad may take effective control of Jet Airways
Given the precarious financial situation of Jet Airways, lenders don’t expect Goyal to bring in additional funds and are banking on Etihad to bail the airline out. ACCORDING TO A PERSON FAMILIAR WITH THE ONGOING DISCUSSIONS
up operational control for an investment in Jet Airways.
The first person said “Etihad also wants its board representation in Jet Airways to go up from the two seats it has now”.
Under Indian laws, foreign carriers can own only up to 49% stake in a domestic airline. The rules also stipulate that management control of a domestic airline should remain with an Indian entity. “While it is possible for Etihad to straightaway hike its stake, it will however have to tender an open offer under the takeover rules under this scenario, said the second person cited above.”
“This is not an ideal situation because the proceeds of the open offer will not come to company and will go to the shareholders instead,” the second person said adding, “The option is for the lenders to convert a part of their outstanding debt into equity and then sell it to Etihad, which will then be exempted from an open offer under the RBI’S February 12 circular.” “A conversion of debt into equity in Jet by the lender will bring down the stakes of all shareholders following which Etihad can again infuse additional money into the company to bring its stake back to the current level. Additionally, infusion of equity in the company will also improve Jet’s leverage ratio allowing to borrow afresh.”
“Etihad Airways will need to make an open offer to acquire up to 100% in Jet Airways if Etihad’s shareholding crosses 25%. But the foreign ownership limit in aviation is 49%. So, Etihad will have to divest its stake following the open offer to bring it down to 49%. However, Etihad may be given a three-month window or so to sell the excess stake to comply with FDI (foreign direct investment) norms,” said a person close to the SEBI.
(Shayan Ghosh and Anirudh Laskar contributed to the story.)