With FIPBs approval on Monday, Jet-Etihad deal to take off finally

Written by Debabrata Das | New Delhi | Updated: Jul 27 2013, 10:01am hrs
New DelhiJet-Etihad deal
Jet Airways promoter Naresh Goyal may finally be able to sell a share in his airline to Etihad Airways with the Foreign Investment Promotion Board (FIPB) expected to clear the deal on Monday. The revised shareholders agreement (SHA), submitted by Jet, as also a letter explaining the clauses of the commercial cooperation agreement (CCA) between Jet and Etihad, are understood to have convinced the government that effective control would stay in the hands of the Indian promoters. The Jet stock soared 17.43% on Friday to R395.50 on the BSE in anticipation of the sale being closed out.

An aviation ministry official, however, said on Friday the ministry would express its views on the CCA at the FIPB meeting. If other countries feel that Jet Airways is being controlled by Etihad due to their close operational links, Jet Airways may no longer be considered an Indian airline and may lose its bilateral flying rights, the official said.

The Abu Dhabi-based Etihad proposes to pick up a 24% stake in Jet via a preferential issue of shares at R754.73 per share and infuse R2,058 crore in Indias largest publicly traded airline. Foreign carriers are allowed to pick up a maximum stake of 49% in Indian airlines.

The new agreement says that board decisions can be passed with a simple majority; earlier, a 75% majority was specified. Also, Etihad can now have a member on the boards nomination and audit committees only if the board nominates the foreign carriers member. In the earlier agreement, Etihad was given the right to have one member each on both the committees. While initially Etihad was given the right to appoint an executive vice-chairman, the foreign airline was subsequently denied this right.

Moreover, board meetings, AGMs and EGMs will be considered to have a quorum even if a single Etihad nominee is not present. Given these changes, Etihad will now be treated as a public shareholder and not person(s) acting in concert, which would eliminate the need for an open offer.

Etihad has also agreed to have only two members on the Jet Airways board instead of three earlier. Jet has only changed the SHA and the changes are more or less in line with what Sebi had sought, said a person in the know of the development. The commercial cooperation agreement stays as it is and the concerns raised by the FIPB have been addressed in the letter of explanation sent to them.

Markets regulator Securities and Exchange Board of India (Sebi) had asked the two airlines to remove the clause where Etihad had a right of first refusal if and when Jets promoters decide to sell additional stakes. It is not immediately known whether this change has been incorporated.

The investment proposal from Jet and Etihad was initially deferred by the FIPB in its meeting on June 14 as various departments and ministries and Sebi flagged concerns regarding effective control being transferred to Etihad. Subsequently, Jet Airways amended the SHA to dilute clauses which, in Sebis view, gave Etihad effective control. Sebi sought further changes to the modified agreement submitted to the markets regulator on May 27. The changes were incorporated and the agreement submitted to the FIPB earlier this week. Spokespersons for Jet and Etihad did not comment on the development.

As part of the deal, Jet and Etihad signed four agreements an investment agreement, governance code agreement, SHA and CCA. While the first two agreements did not concern the regulators, the problems emerged with the SHA and the CCA.

Apart from Sebis concerns on the SHA, the department of industrial policy and promotion (DIPP) and ministry of civil aviation also had concerns that the CCA was transferring some control to Etihad. The markets regulator is not taking into account the CCA for deciding whether control is being shifted to Etihad.

The concerns were related to clauses where Jet Airways was planning to shift revenue and network operations to Abu Dhabi. The agreement also allowed exchange of personnel, authority on each others code sharing agreements, joint pricing of tickets, joint purchase of aircraft and so on.

However, a person in the know of the development said that these clauses have remained unchanged and Jet Airways has explained its stance in the letter to FIPB.