Etihad Airways may increase its stake in Jet Airways under a scheme wherein it will hold 49 per cent directly and bring in a ‘sleeping partner’ to obtain larger control of the debt-ridden airline.
Existing FDI rules bar foreign airlines from owning more than a 49 per cent stake. Etihad currently owns 24 per cent of Jet Airways and has the leeway to increase its stake up to 49 per cent.
However, according to banking sources, the Abu Dhabi-based airline is keen on greater control if it is to infuse more funds in Jet.
Jet founder and Chairman Naresh Goyal, who currently owns a controlling 51 per cent stake in the ailing airline, could see his shareholding come down to below 20 per cent.
Telecom model
“Etihad may adopt the route taken by a number of foreign telecom operators in the past, wherein they extend soft loans to strategic partners to acquire a stake in the company. That way the foreign player remains within the FDI cap but at the same time gets greater economic control of the company,” said a top banking source.
Before 2013, there was an FDI cap of 74 per cent in the telecom sector. But a number of foreign players got into ‘arrangements’ with Indian partners whereby the latter would buy the balance 26 per cent stake through soft loans extended by the foreign player.
Jet Airways’ stock price zoomed 16 per cent at close on Monday on the BSE after TV reports suggested that Etihad has agreed to increase its stake. BusinessLine could not independently confirm whether a deal has been finalised.
Win-win deal
Analysts say this might be the best deal for both the airlines “If the banks drag the airline to the NCLT for insolvency proceedings, Goyal would have to give up ownership and Etihad, too, would lose out. Thus, the best way out for Etihad and Jet Airways would be to come to an agreement,” said a Mumbai-based aviation expert.
Jet did not respond to queries sent by BusinessLine but a source close to the company said a resolution will happen by the end of January. An Etihad spokesperson said the airline does not comment on speculation as a policy.
Last week, Jet had held a meeting with its lessors, vendors and lenders including State Bank of India. There was no decision on extending fresh loans to the airline or restructuring the company ownership. The bankers and vendors had asked the company to deliver on certain milestones based on which further action would be taken.
Jet had shared a blue-print on the cost-reduction programme and the steps it has taken so far. The management had assured of payments going forward but said it needed time to execute the plan. The airline had defaulted on payment of interest and principal instalment due on December 31 to a consortium of Indian banks led by SBI.
The airline has loans of over ₹8,400 crore. Of this, SBI’s exposure is said to be close to ₹2,000 crore.