Jet shares rise on hopes of new ownership
New Delhi/Mumbai: Shares of Jet Airways rallied over 17% in Monday’s relatively weak market on expectations that the struggling airline will soon get an infusion of badly required funds.
Sources in the know say trilateral talks are in the final stages between Etihad, Jet and a consortium of lender banks which would result in a change of ownership. “A resolution is expected under which there will be a complete revamp of Jet. There will be a lot of changes (in the airline) if this deal goes through,” said a source. Under foreign investment rules for Indian airlines, substantial ownership and effective control must be Indian.
Under foreign investment rules for Indian airlines, substantial ownership and effective control must be Indian. Which means, at least 51% must be with an Indian group or a consortium of Indian shareholders. Etihad is learnt to have agreed to hike its stake from current 24% and bring in additional funds into the airline in the form of soft loans.
“As per current rules, Etihad can have up to 49% stake in Jet if the balance 51% is collectively held by Indian shareholders. In Jet’s case this is a bit complicated as Etihad already holds 24% stake and the public has 25% stake with promoters Naresh Goyal and wife Anita having 51% stake,” said a person in the know. For the Etihad deal to go through, Jet will need Indian investors to hold 51% stake. Goyal had approached NRI billionaire M A Yusufalli for picking up a stake in the airline so that the two together can have the majority stake as Etihad raised its stake.
Also, an open offer will be needed for Etihad to raise its stake beyond 25%. “Fresh shares will need to be issued to maintain the ownership structure under SOEC norms where after the fresh issue and open offer, the Indian stakeholder/s have minimum 51%. And the public (who choose to retain Jet shares after Etihad’s open offer) and Etihad having the rest,” said the source.
On BSE, Jet Airways opened at nearly flat at Rs 255 but in late session rallied strongly to a high at Rs 297 and closed slightly off the intra-day high at Rs 294, up 16.1% on the day. The combined volume of trade in Jet Airways stock on BSE and NSE was nearly four crore shares.
On the issue of raising stake in Jet, Etihad said it “does not comment on rumour or speculation.” Jet did not comment on how much stake will Naresh Goyal retain and if he will step down as chairman. “As of now, we can’t comment but things will be clear in a few days, maybe this week itself,” said an airline official.
“The SOEC clause does not say there has to be one Indian owner with 51% and that the foreign airline should not be the single largest stakeholder. The majority stake can be with a group of Indian entities and/or individuals,” said the source. For example when AirAsia India started about four years ago, Malaysia AirAsia Bhd had 49% in the JV, Tata Sons had 41% and Arun Bhatia of Telestra Tradeplace had the remaining 10%. Later, Tata Sons raised their stake to 51% with AirAsia having 49%
Amid all the uncertainty, what is however almost certain is that Jet will need a drastic change in ownership to survive.