Debt-laden KFA, grounded since October, is in stake sale talks with UAE's Etihad Airways and other investors. The company informed the Bombay Stock Exchange that its board, which met on Wednesday, passed a resolution that, "no FII, qualified foreign investor or other non-strategic foreign investment (excluding investment by NRIs) shall be permitted in the company beyond its current level of 3% or such other percentage that the board may decide from time to time."
The government allows foreign investment of up to 49% in domestic carriers.
Analysts said this was a common practice for companies in talks for a possible stake sale. If KFA, indeed, strikes a deal with a foreign investor, it would be able to offload 46% stake according to government rules. "Capping is basically structuring for a possible financial transaction," said Kapil Kaul, chief executive officer, South Asia at Centre for Asia Pacific Aviation, an aviation consultancy firm.
The decision to limit FII investment was taken "with a view to keep the company's capital structure in readiness for transactions that may be identified in the future for the benefit of all stakeholders of the company," said KFA.
Extending its rally for the eighth day, the company's shares closed up 4.98% at Rs. 17.3 on the BSE.