FIPB to discuss airline deal today

Amended agreement still has contentious clauses and sticking points

The Foreign Investment Promotion Board (FIPB) will again take up the contentious Rs 2,058-crore Jet-Etihad airline deal on Monday.

A revised shareholders' agreement (SHA) was given on Thursday to FIPB, the department of industrial policy & promotion (DIPP) and to the Securities and Exchange Board of India (Sebi). It states the board of directors, after Etihad takes a 24 per cent stake in Jet, will have 12 members. Four will be nominated by Jet, referred to as “promoter board member.” Etihad will have two directors, to be categorised as investor board member. There will be six independent directors. In the earlier SHA, Etihad was given three directors.

The chairman of the new entity will be selected by Jet and the vice-chairman by Etihad. The revised SHA states the vice-chairman will have the right to chair board meetings if the chairman isn’t there. This  clause might create a problem as it will give more power to Etihad in crucial decisions if the chairman chooses to stay away, sources said. This was one of the initial objections raised by FIPB, DIPP and Sebi, that Etihad will have more powers in running the daily affairs of the company, flouting the “effective control and ownership” norms of foreign direct investment policy in civil aviation.

Etihad will also have the power to nominate a member to be part of the Audit Committee. Sources said this might be another sticking point.

The revised SHA is not too different from the earlier one on appointment or removal of the independent directors. “Only the terminology has changed to make it look like new,” a senior official involved in the review told Business Standard.

Also, in the revised commercial cooperation agreement (CCA), Etihad and not Jet will take decisions pertaining to the purchase of aircraft and engines, sources said.  

The shareholding pattern will remain the same. Jet promoter Naresh Goyal would have 51 per cent, Etihad 24 per cent and the remaining 25 per cent will be held by foreign institutional investors, non-resident Indians (NRIs), mutual funds and others.

FIPB, under the department of economic affairs of the finance ministry, deferred approval of the deal on the basis of certain provisions in the previous SHA and CCA, which it said gave more powers to the foreign investor. Objections were also raised by DIPP and Sebi.

DIPP has, apparently, also put a question mark on how equity investments made by Goyal, who is an NRI, will be treated in the  calculation of foreign investment in the deal. For, goes the argument, if Goyal’s equity participation is joined to Etihad’s 24 per cent stake, the foreign direct investment limit of 49 per cent “will be easily breached”.

Commerce and industry minister Anand Sharma is understood to be arguing for the deal to go through. He is learnt to have directed DIPP to work out a mechanism on NRI investments under the extant policy so that the proposal goes through.