DUBAI: Abu Dhabi’s Etihad Airways has confirmed it had taken a 24 percent minority stake in India’s Jet Airways for $ 379 million.
The carrier said in an e-mailed statement it would subscribe to 27.3 million new shares at 754.74 rupees per share.
Jet said in a brief statement to the game stock exchange earlier that its board had approved the allotment to Etihad.
Etihad, which is on an aggressive expansion drive, will also make a $ 150 million equity investment in Jet’s frequent flyer program and spend $ 70 million to buy Jet’s three pairs of Heathrow slots through the sale and leaseback agreement announced in February.
Jet’s majority ownership will remain with Indian nationals and Jet’s founder and non-executive chairman Naresh Goyal will hold 51 percent of the airline after the deal, which is subject to shareholder approval, the statement added.
As part of the deal Jet will establish a hub in Abu Dhabi and expand its reach through Etihad Airways’ global network.
The investment would be the first by an overseas operator in an existing Indian carrier since the country relaxed ownership rules in September to allow foreign carriers to buy up to 49 percent in local airlines, which face stiff competition and high operating costs.
It would give Etihad a bigger foothold in fast-growing India and provide Jet, the country’s largest carrier, with a deep-pocketed global partner as well as cash to retire debt that totaled $2.1 billion at the end of December.
The price represents a 31.7 percent premium to Jet’s closing share price on Tuesday. Indian markets were closed yesterday.
“It’s a game-changing opportunity for Etihad, and a game-changing opportunity for India,” Kapil Kaul, regional head of the Center for Asia Pacific Aviation (CAPA), said.
Kaul said Jet would benefit from strategic expertise, cheap financing and possible fuel import benefits in addition to the capital injection.
The deal is also vindication of sorts for an Indian government that has struggled to attract investment from overseas companies wary of regulatory uncertainty and bureaucratic red tape.
“Over the last couple of years we have got into what I call self-inflicted challenges that Indian aviation brings to itself,” Kaul said.
“This gives an opportunity, a window for the world to look at India differently.”
Several sources said Indian government involvement, including recent visits to the UAE by Finance Minister P. Chidambaram and others, helped assuage the worries of government-owned Etihad.
“Not just Chidambaram’s visit, but there has been government-to-government talks at various levels. UAE wanted some assurances, which the Indian government has given them,” a senior diplomatic source said.
The deal sets a valuation benchmark for further investment in Indian airlines, with budget carrier SpiceJet Ltd. frequently the subject of stake sale reports.
Jet shares have had a turbulent ride in recent months as talks dragged over the a deal that drew intense media scrutiny in India. The stock is up about 70 percent since November, after media reports about a possible stake sale. The Indian carrier confirmed talks with Etihad in January.
In February, Etihad agreed to pay $ 70 million for Jet’s slots at London’s Heathrow airport.
IndiGo, the biggest carrier by domestic market share, is eventually expected to launch an initial public offering.
Despite high growth potential, India has been a tough aviation market in recent years, although competition has eased since former No.2 Kingfisher Airways stopped flying late last year as it was dragged down by debt and cash-flow problems and has been unable to find an investor.
The nearly 32 percent premium is sharply higher than the 5.5 percent premium Singapore Airlines Ltd. paid to lift its stake in Virgin Australia Holdings Ltd. to 19.9 percent in another deal announced this week.
“The price is good for Jet. I think Etihad may have paid over the odds slightly, but with Kingfisher out of the picture there is only one full service heavyweight in town, and that’s Jet,” said Sudeep Ghai, managing partner at Athena Aviation, a consultancy in London.
Malaysia-based AirAsia Bhd, Asia’s biggest budget carrier, plans to launch a domestic start-up airline in India later this year through a joint venture with the Tata conglomerate, India’s biggest business house.
Etihad has negotiated stake purchases in four foreign airlines including Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles.
The airline is expanding quickly as it looks to compete with regional rivals Qatar Airways and Emirates, which carries a significant share of Indian traffic to the Gulf region and beyond.
The deal is subject to regulatory and shareholder approval.
Officials from both airlines did not have immediate comment.
Bank of America Merrill Lynch and Credit Suisse advised Jet on the deal, while HSBC was the adviser for Etihad, several sources said.
