Low-cost air carrier Spicejet will raise about $80 million from overseas markets to fund its expansion and fleet induction initiatives. The airline has engaged UK-based global investment banking firm Morgan Stanley to prepare a detailed plan for the fresh fund-raising exercise.
Investment banking sources tracking the development said the funds would be raised through a combination of foreign currency convertible bonds (FCCBs) and issue of fresh equities.
“The fresh equity issued could either be in the form of a rights issue or preference shares, and is expected to be floated by December,” a merchant banking source told Hindustan Times on condition of anonymity.
Spicejet officials refused to comment citing regulatory guidelines. “We cannot comment on the matter now as we are listed on the Bombay Stock Exchange (BSE)”, Spicejet CEO Siddhanta Sharma said.
In 2005, the airline had raised about $80 million through FCCBs. Dubai-based private equity firm Istithmar invested $37.5 million and Goldman Sachs invested $42.5 million in that issue.
The country's airlines are on a major funding-raising exercise, the most recent being the $100-million borrowing programme announced by Air Deccan. State-owned domestic carrier Indian Airlines (IA) has also secured a loan of $540 million from the German national bank to pay for the delivery of 10 new Airbus aircraft. Air-India has also recently closed a loan of $1.3 billion from the US Exim Bank to partly fund its aircraft acquisition programme.
In August 2006, Spicejet signed a sale-and-lease-back agreement with Babcok and Brown Aircraft Management (BBAM) and Nomura Babcock and Brown Company Ltd for five new Boeing 737-900 extended range (ER) aircraft and five Boeing 737-800s.
The aircrafts are valued at $1.1 billion based on the manufacturer’s list price. The sale-and-lease-back route is a common practice followed by airlines globally as they do not have to fund their expansion plans.
According to the agreement, BBAM will pay the aircraft manufacturer once the Boeing 737s are ready for delivery. The company will then lease the aircraft to SpiceJet at a pre-negotiated price for which the airline will pay lease rentals for 10 years.
The airline at present has a fleet of six aircraft and is expecting delivery of three more planes by January 2007. It plans to ramp up its fleet to more than 20 aircraft over the next four years.