India's troubled aviation industry is slowly opening up as govt. realizes the folly of not allowing foreign giants in, especially the geographically and culturally close Gulf giants. This will be the first salvo in a coming rush of such deals.
Etihad Airways of the UAE is close to acquiring 24 per cent stake in India’s second largest carrier Jet Airways in a deal expected to be worth Rs 2,200 crore ($400 million). This will be the first such stake acquisition by a foreign airline after the Indian government opened up the aviation sector in September, allowing foreign carriers to pick as much as 49 per cent stake in domestic airlines.
The deal has been in the works but separate media reports suggested last month that it is facing hurdles over valuation.
According to sources, Jet Airways’ promoter Naresh Goyal has managed to strike a sweetheart deal at a huge premium to the current market price.
“The transaction is likely to happen at close to Rs 800 per share through a preferential allotment of shares. The deal is likely to be closed by next week,” a source privy to the development told VCCircle on condition of anonymity.
Sources also indicate that Bank of America Merrill Lynch and Credit Suisse are the advisors to the transaction.
E-mail queries sent to Jet Airways, Etihad Airways, BoAML and Credit Suisse did not elicit any response till the time of publishing this article.
With an impending deal on the cards, Jet Airways scrip hit a 52-week high on Friday to close at Rs 505.75 a share, up 15.85 per cent on the BSE in a flat Mumbai market. The proposed deal price would be almost 58 per cent premium to the last traded share price.
Jet Airways scrip has more than tripled in less than a year.
At present, Jet’s promoter Naresh Goyal owns 80 per cent stake in the company. The deal will also allow him to cut his holding to conform to the public listing norm which makes it mandatory for all listed firms to have at least 25 per cent stake with the public. This criterion will have to be met by June 2013.
In case the entire transaction takes place through preferential allotment, the promoters will end up with 61 per cent stake after equity dilution. The deal value could be pegged at around Rs 2,200 crore and it would give Jet Airways a post money valuation of over Rs 9,000 crore or twice the current market cap, according to VCCircle estimates.
If the deal involves a partial stake sale by the promoters, the deal value could be a shade lower in quantum.
Sources in the know also add that Etihad does not want to up its stake in the immediate future and 24 per cent stake buy will not trigger the mandatory open offer for a listed firm.
The deal will also help the carrier cut debt. In its conference call held early this month after the second quarter results, Jet Airways management indicated that it had plans to more than double up its repayments to its lenders. It plans to pay $600 million by March 2013 to its lenders.
The company had a total debt of over $2 billion as of September 2012, with around Rs 322 crore in interest payment during the second quarter.
For the three months ended September 30, 2012, the firm drew some 60 per cent of its Rs 4,100 crore revenues from international routes although its margins in the domestic route were marginally higher.
Jet Airways had revenues of Rs 16,703 crore with net loss of Rs 1,420 crore for the year ended March 2012.
At a strategic level, the deal would mean a big fillip to Jet Airways for its overseas routes, with code-sharing alliance. And for Etihad, it will be a leg up to cater to travellers between India and the UAE. Abu Dhabi-based Etihad is a small player in the Indian market while Dubai-based Emirates is a giant.
At present, Emirates dominates the India-UAE route and as per reports, accounts for around one-fifth of all outbound traffic from India, with close to 200 flights a week.
Etihad had been trying to build its international presence in the recent past. It acquired strategic but minority equity stakes in Air Seychelles, Virgin Australia and Air Berlin.
This story originally appeared on VCCircle, a Skift content partner.
Additional links from VCCircle: