Jet promoters may sell stake through offer-for-sale

The promoters of Jet Airways were likely to pare their stake in the company before a deal was sealed with Etihad Airways, sources said. They felt the promoters would sell shares through an offer-for-sale (OFS), to comply with the minimum 25 per cent public shareholding norm before the June deadline.

Share allotment through the preferential route to UAE-based Etihad would entail equity dilution in Jet. Subsequently, the shareholding of existing promoters would fall to 60.8 per cent. However, the Securities and Exchange Board of India (Sebi) doesn’t allow meeting the public shareholding norm through this route.

Currently, promoter shareholding in Jet stands at 80 per cent. A source said the rationale behind planning the OFS before the Etihad deal was uncertainty on securing the requisite shareholder approval, as well as other approvals, before June. Also, if Etihad is inducted as a promoter shareholder, a 12-week cooling-off period would be applicable, making it impossible to launch the OFS before June.

According to Sebi norms, a promoter or promoter group entity should not purchase or sell shares of the company 12-weeks period before an OFS.

Securities law experts said it would be interesting to watch whether Sebi considered Etihad a promoter shareholder or a public shareholder. If both Jet and Etihad are looked at as persons acting in concert, it would complicate matters, as this could even trigger an open offer. “Whether Etihad is branded a promoter or not is an open issue. There is no perfect answer to that,” said Sandeep Parekh, founder, Finsec Law Advisors. “If you are in control of the company, you are a promoter. A private equity investor is not a promoter, as its interests are aligned to that of a minority shareholder. This (Etihad) is something that falls in grey area.”

He added it would depend on Etihad’s self certification—“whether they want to call themselves a promoter or not”.

If the Etihad deal happens first, Jet promoters would have to dilute or sell the excess five per cent, either through an OFS or an institutional placement programme---the two routes specified by Sebi to meet the 25 per cent public shareholding norm.

J N Gupta, founder of Stakeholder Empowerment Services, a proxy advisory form, believes given the business relationship between Jet and Etihad, they are persons acting in concert. “It’s a subjective decision that would depend on factors that include whether Etihad is getting any board seat or day-to-day control. The control would be evident not only from shareholding, but from other factors, too.”

According to takeover code regulations, if Jet and Etihad are persons acting in concert, Etihad would have to make a 26 per cent open offer to Jet’s minority shareholders.

Lawyers said given the public shareholding requirement and other complexities, Etihad would be better off as a public shareholder. However, a lot would depend on the views the regulator and the court took, they said.