Low-cost airline SpiceJet said on Tuesday that it planned to raise as much as $80 million (Rs 355 crore) through a private placement of shares in a financial market event that has raised significant interest in industry circles after the Tatas moved to buy a minority stake in the company.
The Tatas have thus far not clicked in their efforts to make a headway in the skies after the country opened up the aviation sector more than a decade ago, though it is well known that they are keen on the sector.
SpiceJet has received proposals amounting to $118 million. Significantly, the Tata group has proposed to invest $17.2 million through two investment arms —Tata Investments Corporation Limited ($1.2 million), and $16 million by Ewart Investments Limited.
The Tatas have officially described the funding interest as "pure financial investment" but the group's strategy under Ratan Tata has in the past focused on industry leadership on a global scale in any sector in which it has chosen to enter.
Sources close to the deal said that the placement to two Tata investment arms have been made at price band of Rs 40 - 42 per share. At this rate the Tata Group investment companies would hold about 7.5 per cent stake in SpiceJet after the preferential allotment.
A flurry of carriers have joined the fray in Indian skies driving bigger, established players towards consolidation. After a failed attempt to sell itself to Jet Airways, Air Sahara is now on a plan to bounce back.
Signals that consolidation could play a key role in the industry have come in the form of deep private equity interest in SpiceJet.
Besides the Tata group, the other major investors showing an interest in SpiceJet include the Texas Pacific Group ($30 million), Goldman Sachs ($ 5 million) and Dubai-based Istithmar PJSC ( $25 million). BNP Paribas and Swiss Finance Company have also shown interest in picking up stakes in SpiceJet.
"These investors will add tremendous value to SpiceJet. The Tata group is India's finest group, Texas Pacific is one of the best known investment funds in the world while Istithmar and Goldman Sachs have been associated with SpiceJet earlier also," Bhulo Kansagara, director in SpiceJet, told a news conference in Delhi.
"The Tatas offer to invest in our company has a symbolic value as they were the first ones to run an airline in India," another SpiceJet director Ajai Singh said, adding this was a financial investment and a strategic one. "We would certainly ask them to help us with their experience."
SpiceJet said it plans to privately place 6.9 crore equity shares at Rs. 51.36 a share. This would form 27 per cent of the airline's enchanced equity. On that basis, the airline would be valued at $296 million. The promoters' stake would come down to 35 per cent from 43 after the private placement.
"As our fund requirement is of $80 million, we are not looking at raising more money at the current price," said Singh.
"Currently we have 10 aircrafts, we are adding another eight by the end of this fiscal. By December 2008 we will add another ten planes," Singh said.
Email Gaurav Choudhury: gaurav. choudhury @hindustantimes.com