Top Etihad and Jet Airways executives met aviation minister Ajit Singh and commerce minister Anand Sharma on Thursday amid strong indications that an investment deal involving the Abu Dhabi-based carrier picking up a 24% stake in Jet could be finalised in a week or so.
Etihad, which Jet Airways promoter Naresh Goyal helped set up in 2003, will pick up a 24% stake in Jet for about Rs. 1,800 crore, said sources familiar with the development. Once the deal is sealed, the two airlines would apply for approval from the Foreign Investment Promotion Board, they added.
Exactly 17 years after he had to buy back 40% stake in Jet Airways held by Gulf carriers when foreign direct investment (FDI) by foreign airlines was disallowed, Goyal is all set to become the first beneficiary of the reopening up of FDI in the sector. Jet Airways board is slated to meet in Mumbai on Friday.
Aviation minister Ajit Singh said he did not foresee any problems as long as the deal is within the regulatory framework. “The government’s role is to make sure that whatever agreement they come to is within the regulatory framework,” Singh said after a meeting with Goyal and Etihad chief executive James Hogan, who are also likely to meet finance minister P Chidambaram on Friday.
Jet shares rose by 4.3% to Rs. 622 on the Bombay Stock Exchange on Thursday.
“In the first stage of the investment, Etihad will acquire a stake of up to 24% in Jet (just under the level at which an open offer would be triggered) at a valuation $1.3-1.4 billion. This represents a premium of around 35% on the current market capitalisation of the airline,” aviation consultancy firm Centre for Asia Pacific Aviation (CAPA) said in research report. “The investment is expected to take place through the issue of preferential shares and warrants. At a later stage Etihad’s stake could be increased to 49%.”
Low-cost carrier SpiceJet could be the next Indian carrier to get FDI from a foreign airline, according to sources.
Etihad, CAPA said, is expected to secure a seat on the board of Jet and have a say in the induction of some key executives. Goyal holds an 80% interest in Jet through Tailwinds Limited, an overseas corporate body (OCB) registered in the Isle of Man.
“We have put in place an enabling policy and any investment under the policy is welcome,” said Sharma.
The deal would provide a big boost to debt-laden Jet and give it the much-needed capital to expand operations. Jet can also tank up its planes in the UAE. Etihad will benefit by getting a bigger foothold in India. An investment in Jet will also allow it to tap into the large passenger base of Indians who travel to West Asia, as well to North America and Europe.