Etihad has maintained that it has not violated norms of the takeover code

The Securities and Exchange Board of India (SEBI) is expected to issue fresh order in the Jet-Etihad deal this week.

The regulator is re-examining whether there is any new material information post the nod for the deal and whether this could affect control in Jet. Etihad bought 24 per cent equity in Jet Airways at a cost of ₹2,058 crore.

Etihad has maintained that it has not violated norms of the takeover code.

Officials of the Abu Dhabi-based Etihad visited SEBI headquarters in Mumbai last week after the regulator sought some clarifications. Although SEBI had cleared the deal in October 2013, it had said if any of the other regulators had an issue on the deal, it will re-consider its stand.

The Competition Commission of India made an observation on control which prompted the market regulator to re-examine the deal.

SEBI issued a notice to Etihad in February.

After the oral presentation, the airline sought a week’s time for written submission which has been granted.

Meanwhile, there have been two positive developments in the matter.

First, the Finance Ministry has written to the regulator explaining that the Foreign Investment Promotion Board (FIPB) approved the deal as per the provisions of the FDI policy and after thorough due diligence. FIPB is an inter-ministerial body that examines FDI proposals.

It functions under the Finance Ministry and is headed by the Economic Affairs Secretary.

Second, the Competition Appellate Tribunal (COMPAT) dismissed a petition challenging CCI’s approval and further investigation into the matter. The core of the whole issue is control.

It is alleged that Etihad got some management control in Jet even though it has bought only 24 per cent in the latter.

Takeover code

The takeover code gets triggered when one company acquires 25 per cent in another company.

It prescribes for acquisition of 26 per cent more equity. This is done to protect the interest of minority shareholders. The deal, the first one after the Government allowed foreign carriers to pick up 49 stake in domestic Indian carriers, has brought largest foreign direct investment into aviation.

The FDI policy for domestic scheduled airlines (which operates in the basis of published schedule and fare) says that operator’s permit can be granted only to a company that is registered and has its principal place of business within India.

It also prescribes that the Chairman and at least two-thirds of the Directors of the company have to be Indians and most importantly the substantial ownership and effective control of the company are vested in Indian nationals.

(This article was published on April 13, 2014)
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