SEBI nod to Jet-Etihad deal

The Securities Exchange Board of India (SEBI) has approved the Etihad Airways’ plan to buy a 24% stake in the Jet Airways as both carriers revised their deal to comply with conditions set by the markets regulator.

After studying the revised deal structure, SEBI was of the opinion that the Rs 2,058 crore transaction would not trigger a mandatory open offer for purchase of shares from public shareholders and Etihad would not be considered a promoter entity in Jet Airways. Jet promoter Naresh Goyal would eventually have a 51% stake in the company, Etihad 24% and the public shareholding of the remaining 25%.

What are the key Terms and Conditions (T&C) in Jet-Etihad deal?

As per the T&C, Jet Airways need to seek prior approval of the government for any changes to be made in the Shareholders’ Agreement (SHA) with Etihad and also for any change in shareholding pattern of the company. Earlier, the deal was given clearance from the Foreign Investment Promotion Board (FIPB) clearance with a rider that all shareholder disputes and disputes under the SHA would have to be adjudicated under Indian law.

As per the latest clarifications, Etihad will take 2 seats on the 12 member board instead of 3 as was previously proposed. The Indian partner, Naresh Goyal, besides appointing 4 board members, will have the right to nominate the chairman, whereas Etihad will appoint a vice-chairman. Jet has also dropped a clause from its earlier application of shifting revenue management to Abu Dhabi.

What was the issue with the Jet-Etihad deal?

Indian carrier Jet Airways had recently announced that it intends to sell its 24% shares to UAE operator Etihad Airways to attract the $379-million investment rising form the deal. But the deal was stuck after the Foreign Investment Promotion Board (FIPB) and stock market regulator SEBI raised questions about ownership and effective control of the Indian airline passing into foreign hands. There were apprehensions from Indian side that the deal would give the key controls of Jet to Etihad. SEBI had highlighted some clauses of the Commercial Co-operation Agreement (CCA) that might give an upper hand to Etihad. In this regard, SEBI had sought clarification from Jet on some matters of the prospective deal including choosing candidates for senior management positions, consolidation of sales office and general sales arrangements to support sales for Jet in the UAE. Also the right of Etihad to appoint a vice-chairman will not have any significant impact on the issue of control. Indian government wanted to ensure that the ownership and major control of the carrier remains with Jet Airways.

Why Jet-Etihad deal is important for Jet?

The deal is important to Jet, which is facing significant financial challenges. The deal will also help the Indian civil aviation industry by enhancing capacity, increasing competition and bringing down airfares.

Month: Current Affairs - October, 2013