Kingfisher imposes FII cap to make room for strategic investor

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SummaryKingfisher Airlines on Thursday said it planned to cap investments by foreign institutional investors in the company at 3%.

Kingfisher Airlines on Thursday said it planned to cap investments by foreign institutional investors (FIIs) in the company at 3%. The move will help carve out space for a foreign airline to buy as much as 46% in the debt-ridden carrier promoted by liquor baron Vijay Mallya. Kingfisher is reportedly in talks with foreign airlines, including Abu Dhabi’s Etihad Airways, for a stake sale. Foreign direct investment rules permit a foreign player to own up to 49% in an airline.

“Appropriate steps are being undertaken to intimate the RBI about the same and seek consequent measures and also to seek any other approvals that may be considered to give full effect to this decision (capping FII limit at 3%),” Kingfisher Airlines informed stock exchanges on Thursday.

The company board decided to set the FII cap on December 12. The airline told stock exchanges that the decision was taken as the airline was in talks with several “financial and strategic” investors.

“With a view to keeping the company's capital structure in readiness for transactions that may be identified in the future for the benefit of all stakeholders, the board has decided and passed a resolution with immediate effect that allows now FII, qualified foreign investor or non-strategic foreign investment beyond its current level of 3%,” the airline wrote to the Bombay Stock Exchange.

Kingfisher said the restriction will be applied till such time the board decides to withdraw it. As of September 30, FIIs hold 2.46% stake in Kingfisher Airlines.

In September, the government allowed FDI up to 49% in domestic airlines. However, the limit includes FII, who were already allowed to invest in domestic airlines.

Kingfisher is saddled with debt of Rs 8,633.1 crore until September 30 and has not flown since October 1. The airline's licence stands suspended but hopes of revival has been raised after reports of Abu Dhabi based Etihad Airways buying into the airline emerged earlier this week.

A Mumbai-based tabloid reported that Etihad and Kingfisher had agreed to a deal which would see the Gulf carrier buy 48% in the airline. In response, Kingfisher said the company was in discussions with various investors including Etihad for investments, but no agreement had been reached.

Industry observers doubt if such a deal would go through. “I don't think any foreign airline would want to invest in Kingfisher Airlines unless promoters bring in at least Rs 4,000-5,000 crore,” said Rashesh Shah, an aviation stock analyst with Mumbai-based brokerage ICICI Securities.

Kapil Kaul, CEO-South Asia at aviation consultancy Centre for Asia Pacific Aviation said Jet Airways would be a better fit for Etihad. “Buying into Kingfisher would be like starting an airline from scratch,” he said Kaul.

On Thursday, Kingfisher's shares closed 4.98% higher at Rs 17.27.

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