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In a move that could bring some relief to Jet and Etihad, the Industry Department has decided not to treat the investments of Jet’s NRI owner Naresh Goyal in the proposed Rs 2,058-crore joint venture as foreign direct investment.
Goyal’s share, along with the Abu-Dhabi-based Etihad’s proposed 24 per cent stake, would have breached the 49 per cent FDI cap prescribed for the sector, in the absence of a clarification on the matter.
Special dispensation
“After deliberations within the Department, it has been decided to extend the special dispensation for NRI investments in the civil aviation sector also to joint ventures,” a Department of Industrial Policy and Promotion official told Business Line .
Commerce and Industry Minister Anand Sharma has already made the required notes in the Jet-Etihad file, which will now be forwarded to the Foreign Investment Promotion Board. The FIPB takes the final decision on allowing FDI in sectors where foreign investment is not allowed through the automatic route.
DIPP officials had advised the minister that in the FDI limit calculation for the Jet-Etihad deal, NRI investments could be included or left out. The Minister decided to go for the latter option.
“The Jet-Etihad deal is facing enough troubles as it is. The DIPP has always favoured a policy that will attract foreign investments,” the official said.
On the fears expressed by market regulator SEBI of Jet Airways’ control passing on to Etihad after the deal, the official said Jet had already been asked by the FIPB to rework the shareholder agreement and the corporate governance code to take care of such issues.
Cap on voting rights
“We have to look at the revised shareholder agreement and corporate governance code to be submitted by Jet to decide whether they pass muster,” the official said.
SEBI is insisting that Etihad should not get voting rights and other powers in excess of what its proposed 24 per cent stake permits. It is also examining whether the deal would require Etihad to make an open offer to Jet’s shareholders in line with its Takeover Code.
The Jet-Etihad proposal is likely to come up for fresh FIPB scrutiny at its July 29 meeting, if Jet comes up with its revised shareholder agreement by that time.
Etihad’s investment in Jet is the second FDI proposal in the civil aviation sector after Tata Group’s joint venture with AirAsia. The AirAsia-Tata proposal has already been cleared by the FIPB and is now in the process of getting the approval of the Civil Aviation Ministry.
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