$400 mn QIP nod for Jet

Jet Airways today received clearance from the Cabinet Committee on Economic Affairs (CCEA) to raise $400 million (Rs 1,850 crore) from foreign investors through Qualified Institutional Placement (QIP). The proposal was made to the Foreign Investment Promotion Board (FIPB), which referred it to the Cabinet as the QIP was for over Rs 600 crore. The airline has raised Rs 1,000 crore by selling its land in Mumbai.

Jet needed to induce fresh equity to service an estimated debt of Rs 15,000 crore. It reported a loss of Rs 406.7 crore in the second quarter (July-September) of this financial year, up from Rs 384.5 crore loss in the same period last year.

QIP is a capital raising tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or securities other than warrants, which are convertible into equity shares, to a qualified institutional buyer (QIB).

Analysts feel Jet Airways, which got shareholder approval to raise money on July 24, would use the funds to meet its working capital requirements, restructure debt and finance expansion. They also feel the country’s largest private airline may again need infusion in the form of American Depository Receipts and Global Depository Receipts to fund its fleet acquisition plans.

In order to raise the amount, in September Jet proposed to issue Rs 7.92 crore worth of fresh equity shares at Rs 252.50 per scrip. At this price, if all shares were bought by foreign funds, the promoter’s stake would breach the Foreign Direct Investment limit of 49 per cent in an airline. Analysts, however, feel the promoters’ holding in the company may not come down drastically. “The share price of the airline has increased since the time it applied for QIP and it may not go for the offer in full (7.62 crore shares), leading to promoter’s stake not falling drastically,” said Mahantesh Sabard, senior analyst at Centrum, a financial services firm.

“If Jet’s price band is fixed at Rs 400, a fresh issue of equity may keep the promoter’s holding at 50 per cent,” said Kapil Kaul, chief executive officer (India sub-continent), Centre for Asia Pacific Aviation. Promoter and Chairman of Jet Airways Naresh Goyal holds 80 per cent stake.

Jet shares closed 1.94 per cent up on Thursday at Rs 553.55 on the Bombay Stock Exchange.