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Jet Airways moved a step closer to selling 24 per cent stake to Etihad Airways with the Foreign Investment Promotion Board giving conditional nod to the Rs 2,050-crore deal.
At its meeting today, the FIPB set three riders for the deal — Indian, not English, law must prevail in case of any dispute between the two airlines; Jet and Etihad must amend the Articles of Association to bring it in sync with the revised shareholders’ agreement; and, that Jet will have to seek government approval before making any changes to the shareholders' agreement with Etihad or any change in the share-holding of the company.
Finance Ministry sources said the FIPB will send the proposal to the Cabinet after Jet amends the Articles of Association. “Once we get the revised proposal from Jet, we will not need more than three days to prepare the Cabinet note. Then it can go for inter-ministerial discussion,” a senior Finance Ministry said, adding that the process is likely to be completed by August 15.
FIPB’s provisional nod came after the two airlines assured SEBI and the Finance Ministry that effective control and management will not pass into the hands of Etihad by making changes to the Shareholders and Commercial Cooperation Agreement. Besides, any changes in the shareholders’ agreement and shareholding pattern will require FIPB clearance.
It was also clarified to the authorities that the Jet board will be the final deciding authority for the airline and not the various boards that were to be formed; these will be purely advisory in nature.
In April, Jet entered into an agreement with Etihad to sell 24 per cent stake for over Rs 2,050 crore. Post the deal, Naresh Goyal will have 51 per cent share and Etihad 24 per cent. The remaining 25 per cent will be with public shareholders, including banks, financial institutions, mutual funds and retail investors.
Board representation
To facilitate the deal, Etihad agreed to reduce its representation on the 12-member board to two. Earlier, Etihad wanted to have three members, a move that was seen as a violation of the Indian law which stipulates that two-third members of the board be Indian nationals.
The FIPB has also asked Jet to incorporate in the shareholders’ agreement a provision allowing the Chairman, who would be of Indian origin, the power to bring a proposal for consideration of the board without three-fourth majority. This has been done to vest more powers with the Chairman as the Vice-Chairman will be an Etihad nominee.
The stake-sale proposal will have to be cleared by the Cabinet Committee on Economic Affairs and the Ministry of Civil Aviation before it can be implemented. It will also need the nod from the Competition Commission of India to ensure that the new entity does not create a monopoly situation, a process which can go alongside with the clearances from the CCEA and the Ministry of Civil Aviation.
While Civil Aviation Minister Ajit Singh welcomed the deal pointing out that not only will it enhance connectivity but also bring in much needed foreign investments, Janata Party President Subramanian Swamy wrote to the Prime Minister saying the proposed operational arrangement between the two airlines is in conflict with the civil aviation regulation relating to ‘ownership’ and ‘effective control’ of an airline.
Jet Airways’ stock rose 4.22 per cent to close at Rs 412.2 on the BSE on Monday.
>ashwini.phadnis@thehindu.co.in
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