SpiceJet sale on cards; Maran, wife quit holdco

Written by Debabrata Das | Mumbai | Updated: Nov 21 2012, 07:09am hrs
Kavery MaranKavery Maran
Media baron Kalanithi Maran and his wife Kavery Kalanithi have resigned from the board of directors of Kal Airways, the holding company of SpiceJet. The move seems to suggest that the promoters may want to rope in an investor by offering a large and perhaps controlling stake.

This is to inform that due to my preoccupation, I hereby tender my resignation from the post of chairman and director of the company with effect from 05 September 2012, Marans resignation letter to Kal Airways board of directors, reviewed by FE, stated. Kaverys resignation letter also cited the same reason. E-mail queries sent to SpiceJet and Sun Network on Monday requesting more clarification on the resignations remained unanswered. Even after his resignation as the chairman of the promoter company, Maran remains the chairman of SpiceJet and his wife continues to be on the board of the airline.

Kal Airways has a 32.32% stake in SpiceJet while Maran has 16. 27%. SpiceJet has been in talks with foreign airlines, including Etihad Airways and Emirates for a stake sale, for some time now. We are in talks with Bravia Capital and some others, SpiceJet chief executive Neil Mills said on November 1 without revealing the deal size. We have always said we will only raise funds if we get a good deal, Mills added.

Sources say Emirates has been eyeing a controlling stake in SpiceJet. According to a leading consultant, by selling stake in the holding company, Maran can give up control of the airline but comply with the FDI rules. Kal Airways is the largest shareholder in SpiceJet and can increase its stake up to 49% if its control is transferred to a foreign airline or an investor, therefore in essence, control of the airline will be transferred.

The current takeover norms stipulate that once 25% of the equity of a company has been acquired, an open offer is triggered. The acquirer needs to buy 26% of the remaining shares of the company from minority shareholders.

According to BSE data, SpiceJets promoters include Kal Airways and Kalanithi Maran. Kal Airways holds 32.32% while Maran personally owns 16.27% after investing R231 crore by way of preferential issuance of shares. Foreign institutional investors own 2.86%.

Maran was the chairman and director of Kal Airways, a company formed in 2010 to acquire a 37.75% stake in SpiceJet for R750 crore from Wilber Ross and Bhupendra Kansagra. Marans wife Kavery was director. Getting control of an airline will not be easy for foreign airlines even after the government allowed 49% FDI in aviation in September.

FDI conditions state that a company receiving investment from foreign airlines needs to have the chairman and two-thirds of the directors as citizens of India to keep its flying permit.

Apart from foreign airlines, SpiceJet has also been in talks for private equity funding. The airlines chief executive Neil Mills said on October 30 that talks were on with several private equity players also but they havent yet got a good offer.

I havent yet seen a term sheet which is good enough, he said, adding private equity interest in the airline has increased since the government opened up the aviation sector to 49% foreign direct investment.

Hong Kong-based Bravia Capital, which has invested $5 billion in aviation including Chinese airline Hainan Airlines, is also keen to invest in SpiceJet, according to sources in the know of the development.

The promoters of SpiceJet have had advanced level talks with Bravia for an investment of close to $200 million, said a senior official of the airline on condition of anonymity.

The airline has a working capital debt of Rs 200 crore and long-term aircraft acquisition loans of roughly Rs 1,080 crore. While fund-raising is not an immediate requirement, SpiceJet will need to raise money by fiscal 2013-14 as it seeks to expand by acquiring more planes.

By selling a stake in the holding company, Maran can also raise more funds than it would have been possible through a straight stake sale in SpiceJet.

It is just a structuring issue to raise more funds without violating the FDI rules, said a lawyer, who advises companies on mergers and acquisitions. Within SpiceJet, he can only sell 49% stake, but if he maintains the same operating structure and sells a stake in Kal Airways, also he can raise more money and give potential investors the control that they want.

On Tuesday, SpiceJets shares closed 1.30% higher on the BSE at Rs 34.95. The airlines shares had hit a 52-week low on December 22, 2011 when the shares were trading at Rs 15.35. Since then, reforms in the sector and a profitable fiscal 2012-13 first quarter for the airline has led to the share price nearly doubling.

As per Tuesdays share price, SpiceJets market value stands at Rs 1,592 crore.