The Jet-Etihad deal would get the Foreign Investment Promotion Board’s (FIPB) nod only after the Centre notifies the new definition of ?control? in a firm, which is in line with the new Companies Bill, sources in the finance ministry said.
?We don’t want companies to go ‘agency shopping’. The government will resolve the difference in the definition under various regulations before giving a final approval,? a government official told FE.
This means even if Jet amends its articles of association (AoA) in such a manner that it complies with the spirit of the takeover code and gets the nod from Sebi, it would have to wait for the final nod by the FIPB.
Currently, the finance ministry, in consultation with the department of industrial policy and promotion (DIPP), is in the process of defining ?control? in companies. The two sides have met and agreed upon the broad contours of the definition, which would be in sync with the new Companies Bill. Under it, control is defined as ?the right to appoint majority of the directors or to control the management or guidelines decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner?.
So far, the DIPP guidelines, through various press notes, have defined control on the basis of shareholding. If 51% of the equity is held by the domestic shareholder, the company is seen as Indian and controlled by it. Once the new definition of control is notified, it would, apart from taking into account the shareholding, also vet the shareholders? agreement. The idea is to check whether any special management rights have been conferred upon the minority stakeholder that may enable it to control the company. The changes would be prospective in nature and would apply to deals like the Jet-Etihad. In fact, Jet-Etihad deal, would probably be the first to get scrutinised under the proposed definition.
Explaining why the notification of the new definition of control is necessary before any approval is given to deals like Jet-Etihad, the official said otherwise companies go for ?agency shopping?. ?They would say that Sebi has approved my proposal so FIPB should also do it. Currently, the way Sebi, DIPP and ministry of corporate affairs see things like control is different and this at a later stage creates confusion for other agencies.?
Last week, anticipating objections from Sebi, Jet Airways refrained from seeking a nod from shareholders for amendments to the firm?s AoA that would have given Abu Dhabi’s Etihad effective control over the business.
Amendments to the AoA is expected to be such that Etihad does not have effective control over the company. The foreign airline will be allowed board seats strictly in proportion with its 24% stake and its members will not be on the nomination committee. Moreover, the Gulf carrier will not be allowed to appoint a vice-chairman and its members will not be required for a quorum at board meetings.
The Naresh Goyal-promoted airline had convened a meeting on May 24 to ask shareholders to okay its deal with Etihad, which will pick up a 24% stake in the Indian carrier. While the 24% stake does not trigger the mandatory open offer to minority shareholders, Sebi had objected to Jet?s wanting to allow Etihad to have three directors on the board.