Jet Airways’s 24% stake sale deal with Etihad Airways today

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Aviation minister Ajit Singh with Jet Airways promoter Naresh Goyal and others Aviation minister Ajit Singh with Jet Airways promoter Naresh Goyal and others
SummaryJet Airways is likely to sign a term sheet and announce a 24% stake sale to Abu Dhabi’s Etihad Airways.

two airlines are still ironing out valuation issues but the deal could take place at anywhere between Rs 760 and Rs 800 per share, giving Jet Airways a valuation of anywhere between Rs 6,500 crore and Rs 6,900 crore as per the current outstanding shares.

On Thursday, the Jet share closed 4.34% higher on the BSE at Rs 622.70. As per Thursday's share price, Jet's market valuation stood at Rs 5,370 crore. The carrier made a loss of Rs 1,236.10 crore in 2011-12 on revenues of Rs 14,815.91 crore. In the second quarter of 2012-13, the carrier made a net loss of Rs 99.67 crore on net sales of Rs 3,755.28 crore.

Jet's losses have eroded its shareholder equity and the net debt stood at Rs 8,900 crore at the end September 2012 for the standalone entity. On a consolidated basis, the company has a total debt of Rs 12,000 crore.

A fresh issue of equity, as proposed in the deal with Etihad, will improve Jet's debt-to-equity ratio, allowing it to borrow more if need be.

“From Jet Airways' perspective, the most significant advantage from a potential deal would mean more equity and access to loan funds,” a recent report from HSBC Global Research said. “The main benefit to Etihad could probably largely be from better traffic feed from India into Abu Dhabi.”

On a rough reckoning, analysts estimate that an equity infusion of Rs 1,600 crore would also lower Jet's FY14 net debt to Ebitda from 6 times to 4 and increase the interest coverage ratio from 1.8 times to 2.1.

Etihad is expected to put in place an Indian team to fully utilise the synergies with Jet Airways. The West Asian airline started in 2003 and has a fleet of 67 aircraft, which it plans to scale up to 158 by 2020. Jet Airways and Etihad already have a codeshare agreement wherein they can sell tickets on each other's flights.

But an equity purchase in Jet Airways will allow Etihad greater access to India and it would be able to offer greater competition to Dubai-based Emirates. Currently, the

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