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Deccan Aviation may be forced to dilute 25%-30% equity

Deccan Aviation, which is trying to raise $100 million or more in a fresh round of funding, may end up diluting more than 25-30 per cent of its equity, reports Ranju Sarkar.

india Updated: May 07, 2007 21:17 IST
Ranju Sarkar
Ranju Sarkar

Deccan Aviation, which operates budget carrier Air Deccan, which is trying to raise $100 million (Rs 408.88 crore) or more in a fresh round of funding, may end up diluting more than 25-30 per cent of its equity.

Deccan is in talks with hedge funds and institutional investors like Reliance Anil Dhirubhai Group (ADAG) and Texas Pacific Group to rope in a strategic investor, who can strengthen its equity base and sustain the cash burn. Vijay Mallya, who runs Kingfisher Airlines, said that he was interested in acquiring a stake.

Investment bankers tracking the deal say that Deccan may be forced to dilute its equity by 30 per cent to raise $100 million (Rs 409 crore) or more. The company has outstanding shares of 10.02 crore as per its balance sheet.

Assuming a price of Rs 100 (the stock closed at 108.50 on the Bombay Stock Exchange), the company would need to issue 4.1 crore or 4.2 crore shares to raise the targeted $100 million. If it gets a higher valuation (say, Rs 110), the company could raise a higher amount, of say, Rs 462 crore

If the company issues 4.2 crore shares, the total outstanding capital will be close to 14.2 crore shares. Thus, Deccan would be forced to dilute equity by 29-30 per cent to raise $100 million or more, said an industry analyst tracking the deal.

Deccan executives were not available for comments but sources had told HT earlier that the airline is trying to raise its equity base to Rs 1,000 crore from Rs 563 crore today, and would try to close the deal by April-end.

The funds will also be used to partly fund the acquisition of planes—Deccan is taking delivery of 12 planes in calendar year 2008 (5 Airbus A320, 7 turboprops) and part of the new funds would go in bankrolling these acquisitions.

‘‘What we are trying to see is what’s the money we can comfortable raise to ride this irrational market,’’ said an existing investor in Deccan, adding ‘‘Equity is just one of the option. We can also do structured debt or sale and leaseback deals.’’ The investor refuted reports that the airline was facing a cash crunch.

This would be the third round of funding for Deccan. The airline had raised 100 million (Rs 430 crore) in October from two European lenders by pledging the right to buy 60 Airbus planes it ordered. It has received $60 million, and will receive another $40 million in two instalments in November 2007 and February 2008.

In June 2006, Deccan had raised Rs 363 crore ($83 million) by selling shares through an initial public offering. Prior to that, the budget carrier had placed equity worth $40 million (Rs 180 crore) with ICICI Ventures and private equity firm Capital International, which specialises in investing in aviation stocks

Shares of Deccan Aviation fell by 5 per cent to Rs 108.50 on the Bombay Stock Exchange today. The stock has declined 20 percent this year. The airline had sold shares for Rs 148. Industry experts feel the latest equity sale could be at a lower at a lower price than the IPO, at a price close to Rs 110.

Indian carriers are raising a new capital to buy new planes or increase their net worth so that they can absorb more losses—experts had estimated that airlines would together lose $500 million (Rs 2200 crore) in the financial year 2006-07. Hindustan Times was the first to report that on September 12, 2006.

Jet Airways, the country’s biggest airline, plans to sell as much as $400 million of stock in the next few months to buy new planes as it prepares to take deliveries of 30 wide-bodied aircraft from Airbus and Boeing that will fly on international routes. Others like Kingfisher Airlines and GoAir are also trying to raise capital.

ht epaper

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