Jet Airways shares surge again on Etihad reports

Jet Airways shares surge again on Etihad reports

Shares rise as much as 7% on reports that Jet is nearing a deal with Etihad Airways

Mumbai: Shares of Jet Airways (India) Ltd, India’s second largest carrier by passengers carried, rose in early trading on Tuesday on reports of it nearing a deal with Etihad Airways, the national airline of the United Arab Emirates (UAE).

Shares were up 4.34% at Rs.580 apiece at 10:18am on Tuesday after touching the day’s high of Rs.590 earlier on BSE. The benchmark Sensex was trading almost flat, up 0.17% to 19,338.67.

On Tuesday, Etihad CEO James Hogan told Bloomberg India that his airline was interested in a presence in India which he described as an important market. He didn’t comment on the possible deal with Jet. Hogan had earlier told Bloomberg News in October that any purchase in India would be limited to a minority stake.

The Indian government allowed foreign airlines to buy up to 49% in Indian ones in September.

On Monday, Mint reported that Jet would approach the Foreign Investment Promotion Board (FIPB) for permission to tweak its ownership pattern to facilitate an equity investment by Etihad citing two unnamed people aware of the plans.

Jet Airways needs to change its shareholding pattern because promoter Naresh Goyal holds his stake through an overseas corporate body (OCB). Goyal’s Tail Winds Ltd, registered in the tax haven Isle of Man, owns 80% in Jet Airways and the balance is held by public shareholders.

The carrier will seek FIPB approval to transfer Tail Winds’ holding to London-based non-resident Indian (NRI) Goyal, one of the two people mentioned above said. India allows 49% foreign investment in an airline and 100% investment by NRIs.

Goyal had made the investment through Tail Winds in the mid-1990s. The Reserve Bank of India has since ended the concept of OCBs and investments by such entities are now considered foreign holdings.

FIPB in 2011 had disallowed a Jet Airways proposal to raise $400 million (around Rs.2,200 crore) through a qualified institutional placement because this would have raised the foreign investment in the airline.

Though an investment through an OCB is considered a foreign investment, Goyal and Jet have thus far been exempt from the norm, but he will now transfer the stake to himself as an NRI to ensure the entry of another foreign entity, Etihad, Mintreported on Monday.

Both Jet and Eithad are carrying out due diligence exercises, and Eithad is expected to pick up a minority stake in Jet by the end of the current fiscal year, according to one of the persons quoted in that story.

Consultancy firm Ernst and Young is advising Jet Airways and PricewaterhouseCoopers Pvt. Ltd is advising Etihad on the proposed deal.

Goyal will anyway have to cut his holding in Jet by June to adhere to India’s public listing norms, which stipulate that at least 25% of the shares of a listed entity should be with the public.

The two people mentioned earlier said the transaction will be through the issuance of preferential shares and structured in such a way that Etihad will not have to make an open offer. Under current market regulations in India, an entity buying a 25% stake in a listed firm has to offer to buy an additional 26% from public shareholders.

“There are no hurdles for this deal as Jet Airways will seek permission to transfer shares from OCB Tail Winds to Goyal. Jet Airways is also planning to apply for necessary approval from the home ministry. Currently, the discussions on valuations are progressing. It will take at least three months to close the deal,” one of them said.

A senior FIPB official confirmed over the weekend that Jet Airways needs the board’s approval, but said it had not received any application yet.

Jet’s spokesperson declined to comment for the Monday story.

“Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy,” an Etihad spokesperson said in an email over the weekend. “If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements.”

Etihad Airways holds equity investments in airberlin, Air Seychelles, Virgin Australia and Aer Lingus.