Jet, Etihad to rework control clause after Sebi objection

Jet Airways and Etihad Airways are planning to rework the shareholder agreement to address the market regulator's concerns about substantial management rights to the latter.

The Securities and Exchange Board of India (Sebi) wanted Jet to convince it that the agreement did not amount to joint control alongside promoter Naresh Goyal.

The shareholder agreement treats Etihad as a "public shareholder", thereby exempting it from making an open offer.

"Both sides are working to amend portions of the shareholder agreement. These pertain to composition of the board, powers of board members, among other things," said a source familiar with the developments. He added that the revision might happen over the next few days.

Jet today did not put up the proposal to amend the company's article of association at the company's extraordinary general meeting here, where the sale of 24 per cent equity stake to Etihad was approved.

Etihad is investing Rs 2,060 crore in the airline and according to the original agreement, would get three seats on the board. Jet's shareholders, however, objected to certain clauses which gave Etihad a say in important matters such as appointments of vice-chairman and auditors.

Another objection was to a particular clause that stated the quorum of meetings would not be complete unless there was a member each from Jet and Etihad.

Some shareholders said the articles of association were discriminatory to ordinary shareholders and inserted at Etihad's behest. "It indicates that Etihad has joint management control and can be treated as a person acting in concert," a shareholder said.

Jet's Vice-President (investor relations) K G Vishwanath told shareholders the airline had not received any written communication from Sebi on the issue and said it was too early to talk about possible implications.

Jet Chairman Naresh Goyal said the management took a prudent stance of deferring the resolution and it would be put up for approval after receiving all regulatory clearances.

Goyal will dilute five per cent of his shareholding in an offer for sale on May 29 or 30. Goyal holds 80 per cent in Jet Airways and the dilution is required to conform to Sebi's shareholding norms. Vishwanath said there will be a cash infusion of $750 million (Rs 4,169 crore) in debt and equity as a part of the deal. This cash infusion will help the airline reduce debt from $2.1 billion (Rs 11,500 crore) to $1.5 billion (Rs 8,200 crore), he said. Goyal told shareholders the relaxation of FDI rules was a game-changer and the alliance with Etihad will enable Jet to increase network, reduce costs, improve profit and grow in a sustainable manner.