Removing concerns over a perceived dichotomy between FDI policy and the takeover code, the Securities and Exchange Board of India (Sebi) has made it clear that the code will not supersede or replace the FDI policy or any other government regulation for that matter.
This follows the finance ministry’s reported worry that the code could clash with the foreign direct investment (FDI) caps in sectors where foreign investment is capped at less than 51%. Sebi has said that section 32 of the Sebi Act says the code it?s ?in addition? to (and not in lieu of) other rules.
As per the amended takeover code, an open offer is triggered once an investor acquires 26% stake in a listed company. The size of the open offer required is 25%, that is, the investor will have to buy that much additional equity from the public.
The issue of conflict between takeover code and FDI policy has come to the fore in the wake of the proposal to allow foreign carriers to pick up 26% in Indian airlines.
Sources in the government told FE, ?Sebi has decided to exempt the aviation sector from takeover guidelines and will soon send its formal nod to the DIPP.” Apart from avoiding a breach in the proposed FDI cap, the Sebi clarification would also help marry FDI regulations with those under Sebi’s takeover code.
The finance ministry has given the green signal to the proposal to allow 26% FDI by foreign airlines in the private carriers, many of them facing a cash crunch, with a rider that such investments should not violate Sebi’s takeover code.
The Department of Industrial Policy and Promotion (DIPP) had proposed 26% foreign direct investment (FDI) by foreign airlines into the domestic industry in the backdrop of Kingfisher Airlines slipping into a severe debt crisis and several others facing resource crunch The Sebi’s move for exemption in regulation in aviation sector would benefit listed companies Jet Airways and Kingfisher Airlines.
It is also understood that once cabinet clears the proposal of allowing foreign carriers to pick up 26% stake, the immediate beneficiaries of the move will be Kingfisher and Jet airways.
Kingfisher who is scouting strategic investors reported a net loss of R468.66 crore for the second quarter ended September 30.
Up till now, India allowed foreign investment of up to 49% in Indian carriers, but foreign airlines were not allowed to invest directly or indirectly in domestic
A relaxation in FDI is understood to be a breather
for Kingfisher as the airline has not made any profits since it launched in 2005 and its debt has also crossed over R7,000 crore.