Jet Airways: Etihad likely to raise stake to 49 per cent

Etihad Airways may increase its stake in Jet Airways under a scheme wherein it will hold 49 per cent directly and bring in a ‘sleeping partner’ to obtain larger control of the debt-ridden airline.

Existing FDI rules bar foreign airlines from owning more than a 49 per cent stake in domestic airlines.

Etihad currently owns 24 per cent of Jet Airways and has the leeway to increase its stake up to 49 per cent. However, the Abu Dhabi-based airline is keen on gaining greater control if it is to infuse more funds in the ailing airline. Jet Airways founder and Chairman Naresh Goyal, who currently owns a controlling 51 per cent stake in the airline could see his shareholding come down to below 20 per cent.

Telecom model

Etihad may adopt the route taken by a number of foreign telecom operators in the past, wherein they extend soft loans to strategic partners to acquire a stake in the company. That way the foreign player remains within the FDI cap, but at the same time gets greater management control of the company.

Before 2013, there was an FDI cap of 74 per cent in the telecom sector. But a number of foreign players got into ‘arrangements’ with Indian partners whereby the latter would buy the balance 26 per cent stake through soft loans extended by the foreign player.

Jet Airways’ stock price zoomed 16 per cent at close on Monday on the BSE as news reports suggested that Etihad has agreed to increase its stake. Although it cannot be confirmed whether the deal is finalised. If it gets through, this might be the best deal for both the airlines, if the banks drag Jet Airways to the NCLT for insolvency proceedings, Goyal would have to give up ownership and Etihad, too, would lose out. Thus, the best way out for Etihad and Jet Airways would be to come to an agreement.

On Tuesday, the Jet Airways stock opened at Rs. 298.20 per share and touched a high/low of 313.50/296.50 per share.