The Hindu Business Line : W.L. Ross to invest Rs 345 cr in SpiceJet

New Delhi, July 15 The Delhi-based low cost airline, SpiceJet announced on Tuesday that its board had accepted an offer made by US based private equity firm W.L. Ross, which will make available $ 80 million (Rs 345 crore) for the company.

W.L. Ross has emerged as an investor in SpiceJet by acquiring Foreign Currency Convertible Bonds (FCCB) held by Istitihmar, the private equity arm of the Dubai Government and Goldman Sachs, sources close to the transaction said.

The FCCB which is being acquired by W.L. Ross was subscribed to Istithmar and Goldman Sachs in December 2005. “W.L. Ross will release $ 80 million which will flow in for the day-to-day running of the airline within the next four weeks,” a person closely connected with the deal said. The announcement led the airline stock to close more than 2 per cent up at Rs 28.55 on Tuesday on the BSE.

The decision to buy out the FCCB is likely to see the private equity firm Chairman and Chief Executive Officer, Mr Wilbur Ross Jr and Managing Director and CEO, W.L. Ross, India, Mr Ranjeet Nabha, join the airline board soon.

W.L. Ross along with Jet Airways and Kingfisher Airlines were the three companies shortlisted by N.M. Rothschild and Sons as possible investors for SpiceJet. In May this year, the low cost airline appointed, Rothschild as the financial advisors to scout for investment of about $ 100 million. While the Ross proposal was to pump funds into SpiceJet, the proposal from either of the two airlines called for a merger thereby providing synergy benefits that will help contain cost of operations and improve the financial health of the low cost airline.

The decision to accept the bid put in by W.L. Ross was firmed up around 10 p.m. on Monday at the Worli office of Rothschild, sources said adding that one of the primary reasons for accepting the offer of the private equity investor was that it had put a “firm proposal” on the table.

Meanwhile, in a statement, Mr Wilbur L. Ross Jr, Chairman and Chief, Executive Officer, W.L. Ross, said that he not only believed in the long-term validity of the low cost airline model in India but also believes that fuel prices will eventually stabilise. Sources indicated that Ross feels that the domestic aviation industry should be able to see a turn around in the next 12-18 months.

SpiceJet, like several other airlines has been hit by the rising cost of aviation turbine fuel, which accounts for between 45-50 per cent of the operating cost of most domestic airlines. The airline reported a net loss of Rs 133.5 crore for the full year ending March 2008 as against a loss of Rs 72.1 crore reported during the previous year, mainly due to the increase in fuel prices.

SpiceJet is a widely held company with 56 per cent of SpiceJet shareholding with 16 companies and individuals, including Istithmar PJSC (13.42 per cent), Ajay Singh (4.16 per cent); Deutsche Securities Mauritius Ltd (4.13 per cent), and Swiss Finance Corporation Mauritius Ltd (2.52 per cent). Besides, the promoter group, Royal Holding Services Ltd, has 12.91 per cent stake in the airline. Some of the other shareholders in the airline could also exit in the near future, sources indicated.

SpiceJet, which started operations in 2005, currently has a fleet of 15 Boeing 737 aircraft operates 94 daily flights.

More Stories on : Airlines | Venture Capital

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page