TPG Capital looking for stake in IndiGo

Leading global private equity fund TPG Capital (formerly Texas Pacific) is talking to Indian budget carrier IndiGo. It intends to pick up a 10 to 15 per cent stake in the airline. If it materialises, the deal will be closed within the next few months, said investment banking sources.

But Rahul Bhatia, managing director of InterGlobe Interprises, which owns the airline, said that the company was not looking at any dilution of promoters' equity. InterGlobe Enterprises and the former president and chief executive officer of US Airways, Rakesh Gangwal are joint promoters of IndiGo.

Sources close to TPG maintain, however, that the private equity firm is exploring investment opportunities in the aviation sector in the country and Indigo is one of its target companies. "Airlines were forced to reduce fares even as aviation turbine fuel (ATF) prices went up and, valuation of the industry came down in 2006. Now it's time for consolidation, and global PE firms have a major role to play," said a Lehman Brothers analyst.

If successful, the transaction will mark TPG's first aviation investment in India. The company was in talks with Air Deccan before Kingfisher air chairman Vijay Mallya acquired a 26 per cent stake recently. It was also in talks with SpiceJet. These transactions failed, either due to differences over valuation or because the airlines were not ready to offer a higher stake in the company.

Mallya put up Rs550 crore for a 26 per cent stake in Air Deccan earlier this year, while ICICI Ventures invested $50 million for a 19 per cent stake in Air Deccan in 2005. TPG, which manages over $30 billion assets across the world, is among the PE players that have made substantial investments in the aviation sector. It has invested in Continental Airlines, Ryanair, Australia's Qantas and has also placed a bid for Midwest Airlines.

IndiGo — which has placed a $6 billion order to acquire 100 Airbus A320 aircraft — is expected to use private equity finance for its expansion plans. So far, the airline has received 11 Airbus A320-200s the remaining 89 are on order. Indigo gets one brand new plane every four to six weeks. By 2010, the airline plans to serve 30 Indian cities, with a fleet of 40 A320 aircraft.