The Securities and Exchange Board of India has said that Jet Airways and Etihad Airways should enter into a Commercial Cooperation Agreement only after culmination of the Shareholder Agreement as the former appears to give an “upper hand” to Etihad on commercial matters and was also one of the conditions for making investments.
The Shareholder Agreement (SHA) governs the rights and obligation of shareholders while the Commercial Cooperation Agreement (CCA) helps enhance business, profitability and competitiveness through joint initiatives.
This is part of a 24 point-clarification given by SEBI to the Finance Ministry on the issues of change of ownership and control of Jet, after the deal.
In its note, SEBI has highlighted some clauses of CCA that might give an upper hand to Etihad.
These points include sourcing candidates for senior management position, consolidation of sales office and general sales arrangements to support sales for Jet in UAE and Etihad taking a lead role in negotiations with suppliers, besides others. However, SEBI said that these might be meant for exploiting the operational synergies between the two companies. The regulator has also said that the right of Etihad to appoint a Vice-Chairman will not have any significant impact on the issue of control.
Meanwhile, both the companies have changed the controversial clause related to the appointment of Independent Director and Chief Executive Officer, where the board will have the final say.
FIPB meeting
The clarifications given by SEBI and the revised shareholder agreement will be placed before the Foreign Investment Promotion Board on Monday when it will meet to consider the Rs 2,058-crore Jet-Etihad deal, besides other proposals.
The Economic Affairs Secretary Arvind Mayaram is the Chairman of the board.
The Department had sought SEBI’s views on the issue of substantial ownership and effective control and applicability of takeover codes, besides minimum public shareholding norms.
Execution of CCA is one of the conditions for making the investment by Etihad and forms part of SHA.
Therefore, “SEBI is of the view that CCA should not be entered between the parties at this juncture and the issues covered under CCA should be decided by the respective boards of Jet and Etihad after the culmination of SHA,” the regulator said.
It also said that CCA should not undermine the powers of the board of the company at any point of time to enter or exit such commercial arrangement.
“If such CCA comes into existence in future, the same may be examined by the concerned authorities at that point in time, according to extant provision of the law,” it further added.