Global private equity investor Wilbur L Ross, who made his fortunes by turning around bankrupt companies, has agreed to invest $80 million (Rs 345 crore) in low-cost airline SpiceJet which has plunged into heavy losses on the back of spiraling jet fuel prices. Ross’s investment comes amidst concerns about the future of low-cost airline industry which made flying affordable to average Indians. SpiceJet scrip, which plunged 14 per cent on Monday following the resignation of its CEO, closed with a gain of 2.15 per cent at Rs 28.55 on the Bombay Stock Exchange (BSE).
Wilbur L. Ross Jr., Chairman & CEO, WL Ross & Co. in a statement said, “We believe in the long term validity of the low cost airline model in India and that fuel prices eventually will stabilise.” SpiceJet, which is unable to raise funds, will use the investments from Ross to fuel its expansion plans. SpiceJet, which began its operations in February 2005 after changing its name from Royal Airways, has been posting daily losses of up to $7.5 million.
Ross would buy foreign currency convertible bonds (FCCB) held by investment firms — Istithmar and Goldman Sachs — in the airline, SpiceJet director Kishore Gupta told international news agency-Bloomberg. “The purchase will enable SpiceJet to use funds from the account it could not utilise until now. Wilbur Ross will decide later on conversion,” Gupta said.
In December 2005, SpiceJet had issued FCCBs worth $80 million to Istithmar (12.5 million) and the rest to Goldman Sachs, which are schedule to mature in 2010. These bonds are listed on the Luxemburg Stock Exchange. Apart from this, Istithmar and Goldman Sachs also hold equity stake in the airline. Post conversion, Ross's holding in SpiceJet could be little less than 15 per cent.
Ross’s strategies would bolster the fortunes of the airline, feel aviation industry analysts. “Apart from fund infusion, what matters most is the presence of Ross on the the airline’s board.
There will be a drastic change in the mindset,” said Kapil Kaul, CEO (India), Centre for Asia Pacific Aviation (CAPA).