Budget airline SpiceJet seems to have made some headway in its talks with the American turnaround investor Wilbur L Ross for infusion of capital in the form of equity.
A source close to the development said the budget airline is considering issuing fresh equity in the name of the billionaire’s company —- WL Ross & Co.
The source said that the airline board will meet on Wednesday to clear the proposal.
“They (SpiceJet) are looking at issuing preferential shares to Ross & Co. The board will be meeting on Wednesday (to clear the proposal),” said the source.
The price of the preferential share will be worked out on the basis of the Securities and Exchange Board of India (Sebi) formula —- 26 weeks average share price or the average share price over the last 14 days, whichever is higher, the source said.
SpiceJet executive chairman Siddhanta Sharma did not confirm the deal beyond stating that talks were on with Ross. “We have appointed N M Rothschild & Sons (India) to advise us on raising the funds from the market and they have contacted various investors. Wilbur Ross is one of them,” said Sharma.
As regards the board meeting on Wednesday, Sharma said during the June-end board meet, it was decided to meet again in early July. “The final decision on the date (of the meeting) has still not been taken,” Sharma said.
What could have turned the deal in favour of Ross must be better valuation and retention of control.
Kingfisher Airlines chairman Vijay Mallya, who bought over Deccan from G R Gopinath last year, is also said to be in the fray to acquire the airline.
According to reports, the billionaire has offered a 1:3 share-swap deal, which would convert three SpiceJet shares into one share of the merged entity.
Another report has said that Mallya has offered all-cash deal.
Industry sources say the share-swap deal would not have excited SpiceJet directors as it erodes their small holding in the firm. Promoter Bhupendra Kansagra, along with his family, controls around 13% in the budget airline. The Dubai government’s private equity arm, Istithmar, which has 14% stake, is also looking to divest.
“The share swap deal would have diminished their stake too in the merged entity,” said an airline industry expert.
However, Ross’ investment in the airlines is also not without problems.
Sources said what was coming in the way of the US investor is the cap of 49% on foreign equity capital in a domestic carrier.
“This is why there is a limited appetite for foreign funding,” said an industry source.
The ceiling on foreign equity will not permit Ross to bring in more than a certain amount of money, especially since Kansagra’s and Istithmar’s investments in the airline also come under the same bracket.
That is why Ross will infuse only around Rs 200 crore even though the US investor has far greater financial strength.
Also, if Ross’s holding crosses the 15% threshold, it will activate the Sebi rule that would require him to make an open offer for a minimum additional 20% stake.
Source: DNA India