SEBI, CCI seek clarity on Jet-Etihad deal
23 May 2013
Market regulators Securities and Exchange Commission of India (SEBI) and the Competition Commission of India (CCI) have sought more details on Abu Dhabi carrier Etihad's Rs2,058-crore stake purchase in Jet Airways to ensure that the deal is not prejudicial to public interest and will not kill competition in the aviation market.
While SEBI is worried that the stock purchase has been kept deliberately below the 25-per cent trigger limit to skirt the mandatory open offer for minority shareholder, CCI is worried that even with a 24-per cent stake, the transaction indicates a larger hold of Ethihad on the domestic airline.
While the two regulators have sought clarity on different issues, both SEBI and CCI are concerned that the 24-per cent stake purchase does not affect larger public interest and that consumers are affected.
Regulatory concerns arise since the Jet-Etihad deal involves investment in an existing company rather than fresh investment in a new company and the relative advantages and market dominance of Gulf-based airlines, which could adversely affect prospects of domestic carriers.
Both SEBI and CCI are concerned about certain contours of the transaction, including Jet Airways' transfer of slots in Heathrow Airport to Etihad, which indicate a larger control of Etihad in the Naresh Goyal-led Indian carrier despite it owning only a 24-per cent stake.
The two regulators are seeking further clarity on the transaction and might suggest certain changes, or at least an additional disclaimer by the two parties, to ensure that Etihad's ownership powers in Jet remains in line with its 24 per cent stake in the company's equity capital, they added.
Reports, meanwhile, said Jet Airways has failed to clarify on issues raised by the two regulators. The airline also did not answer queries as to whether it would be open to making changes in the deal to address the concerns raised by SEBI and CCI.
SEBI is also looking into a sharp surge in the share price of Jet Airways ahead of the deal, possibly on expectations of an open offer.
As per the government's foreign direct investment (FDI) policy, a foreign airline is permitted to buy up to 49 per cent stake in domestic carrier and as per SEBI regulations, any share purchase of 25 per cent or above triggers a mandatory open offer to minority shareholders as well.
Also, under the deal, Etihad has committed $600 million to strengthen Jet's financial position, besides injecting another $220 million to create and strengthen a wide-ranging partnership between the two carriers, including a strong codeshare arrangement.
Etihad also paid $70 million in February to purchase Jet's three pairs of slots at Heathrow through a sale and lease back agreement. Jet continues to operate flights to London utilising these slots.
Etihad would also invest $150 million "by way of a majority equity investment in Jet Airways' frequent flyer programme 'Jet Privilege'.
The companies, however, insist that Indian nationals will continue to hold substantial ownership and effective control in Jet Airways, with non-executive chairman Naresh Goyal holding 51 per cent stake.