heavily leveraged and that the interest bill is rising due to the rising risk aversion of banks towards the aviation sector. Moreover, the depreciating rupee has resulted in a rise in interest costs on dollar-denominated loans. On a rough reckoning, an equity infusion of Rs 1,600 crore will lower Jet’s FY14E net debt to Ebitda from 6 times to 5 times and increase the interest coverage ratio from 1.8 times to 2.1 times, analysts estimate.
A civil aviation ministry official had said on Wednesday that for the consummation of the deal, Jet would have to restructure its shareholding pattern. Currently, promoter-chairman Naresh Goyal holds his 80% stake in the airline through an overseas corporate body (OCB), Tail Winds Ltd, registered in the tax haven of Isle of Man. The airline would need to convert its Tail Winds ownership to London-based non-resident Indian Naresh Goyal’s name and would need FIPB approval for the same. The change in ownership structure would be required as Indian laws allow only 49% foreign investment in airlines and 100% investment by NRIs. Tail Winds is considered to be a foreign investment as the Reserve Bank of India has ended the concept of OCBs and considers such investments to be foreign investments.
If Etihad and Jet agree to a 24% stake sale, it would not trigger the takeover code which say that a company acquiring 25% and above in another listed firm, needs to make an open offer for another 26% of the equity. Since foreign investment in aviation is capped at 49% and such a provision could potentially result in the limit being breached, the government had said the investors would need to apply to the regulator for an exemption.
* Etihad is expected to pick up a 24% stake in Jet for around R1,600-1,800 crore
* Jet’s market capitalisation as per Thursday’s share price is R5,242 crore
* More equity, access to loan for Jet Airways; greater traffic from India for Etihad
* Jet-Etihad tie-up could see Jet emerging as more formidable rival to Air India