SpiceJet promoter Ajay Singh rules out diluting stake to raise money

Says cash flow enough to handle expenditure of litigation and bulk aircraft order

Ajay Singh, promoter of domestic airline SpiceJet, is unlikely to dilute his stake in the company as he believes there's no immediate requirement of cash despite a possibility of cost overrun due to a pending legal case and payment for bulk aircraft purchases.
 
“The company’s cash flow is sufficient to run the business and handle other liabilities. There is no plan to dilute stake or bring in a strategic investor at this point of time,” Singh told Business Standard in an interview.
 
SpiceJet, which reported 18 per cent growth in profit in the first quarter of FY18, has been asked by the Supreme Court, in the share transfer dispute with ex-promoter Kalanithi Maran, to deposit Rs 579 crore, including Rs 250 crore in cash and remaining in the form of a bank guarantee. The company will also have to make a pre-delivery payment for the 205 737 Max planes it had ordered early this year.

 

Singh said the ongoing arbitration with ex-promoter Maran — which may result in the company paying a hefty amount — will not have any impact on the company’s balance sheet. “We are cooperating with the arbitration process; we had twice sought approval from the regulator to transfer the warrant into shares but were denied permission. Whatever the outcome, it will not have any impact on the company’s fortunes,” Singh said.
 
Analysts tracking the company, however, said SpiceJet was likely to face a liability of Rs 800 crore if the arbitration goes against Singh and would have to approach banks for loan. Additionally, the company will take up an incremental debt of around Rs 150 crore for pre-delivery payment of the bulk order. “If we assume Rs 60 as the share price when the case was argued at the court, the value of the warrant sums up to Rs 8 billion (Rs 800 crore),” Ansuman Deb of ICICI Securities noted in a research report.

 
When asked about how the company will raise money to do the payment for the aircraft, Singh said,  “There is enough liquidity available in the market for aircraft financing; we are exercising the sale and leaseback option and have already completed the process for some aircraft.” The company will receive around 20 737 Max aircraft by 2019, he added.
 
Deb of ICICI has factored an incremental debt of around Rs 150 crore in FY19 for the pre-delivery payment of aircraft order. “With increased balance sheet strength, the company will be able to attain favourable financing with lessors,” he said.