Jet's stake sale to Etihad to raise Rs.2,000 crore (Roundup)

Mumbai, April 24 (IANS) Eight months after the Indian government permitted international airlines to invest in domestic passenger carriers, Jet Airways Wednesday announced a 24 percent stake sale to Abu Dhabi-based Etihad Airways to raise Rs.2,000 crore ($370.30 million).

"The board of directors has approved, subject to compliance with applicable laws and regulations, the issuance, by way of a preferential allotment... of 27,263,372 (2.73 crore) equity shares of the face value of Rs.10 to Etihad Airways at a price of not less than Rs.754.73 (including premium of Rs.744.73 per share) per equity share," the company informed the Bombay Stock Exchange (BSE) Wednesday.

The move, which has to be ratified at an extraordinary meeting of its shareholders, will enable the company service its debts and provide passengers with better connectivity.

"The board of directors has granted approval for the company and Etihad to enter into, inter alia, the investment agreement in relation to such issuance and allotment and other documents incidental thereto. The said preferential allotment is subject to various conditions precedent, including regulatory approvals," the company said.

The deal is expected to garner around Rs.2,000 crore ($370.37 million) for Jet Airways, which reported a net profit of Rs.85 crore in the third quarter of 2012-13, after a net loss of Rs.101.22 crore in the similar period of the previous year.

The company's total income during the quarter under review had increased by 6.6 percent to Rs.4,205.77 crore, from Rs.3,939.16 crore in the corresponding quarter of last fiscal.

On Wednesday, the Jet Airways' scrip at the BSE rose by 4.43 percent or 24.35 points to Rs.573.85 per share from its previous close of Rs.549.50.

The two airlines were negotiating a Jet Airways' stake sale since last September. However, the deal was delayed due to investment protection and management control issues.

Interestingly, the announcement comes just a day after India and the UAE began negotiations to enhance bilateral air traffic rights on the India-Abu Dhabi sector.

Indian passenger carriers, especially Jet Airways have sought an exponential increase in seat capacity on the sector. The existing bilateral air service agreement (BASA), entitles India based airlines to offer 13,300 seats per week on the route.

According to sectoral experts, the deal will bring in fresh funding opportunities for Jet Airways, which has an estimated debt of around Rs.12,000 crore, whereas passengers will get better connectivity options through the Jet-Etihad network. Jet passengers will also be able to leverage the networks of Air Berlin, Air Seychelles and Aer Lingus, Ireland's national carrier, which Etihad Airways has already invested in.

"It is a very positive move. There were negotiations going on for a long time. It will provide Jet with much needed financing options and a major international partner. Passengers can look forward to using the networks of both airlines for international and domestic travel," Sharan Lillaney, aviation analyst at broking firm Angel Broking, told IANS.

The company's scrip at the BSE might touch its circuit breaker limit of Rs.659.40 when the markets open Thursday.

Earlier, Jet-Etihad Airways concluded a deal Feb 27 to acquire three Jet Airways slots at London airport for $70 million.

In February, Etihad chief executive James Hogan and Jet Airways' chairman Naresh Goyal led a joint delegation at separate meetings with Finance Minister P. Chidambaram, Civil Aviation Minister Ajit Singh and Commerce Minister Anand Sharma to apprise them about a possible stake sale deal.

The government last year allowed foreign airlines to invest up to 49 percent in private domestic carriers. This was not permitted earlier for security reasons, although 49 percent FDI by non-airline players was allowed.

The government expects that the decision will help bring in more funds to the airlines that have been cold-shouldered by banks.

The Indian civil aviation sector has been going through a tough operating environment due to high fuel and interest costs.