The Cabinet Committee on Economic Affairs, or CCEA, on Thursday cleared the sale of a 24 percent stake in Jet Airways (BOM:532617) to Abu Dhabi-based Etihad Airways, paving the way for the first foreign direct investment in India’s aviation sector, after the government relaxed norms for foreign investors a year ago.
The $330 million deal announced six months ago by the companies was awaiting regulatory approval after concerned authorities raised objections over the proposed share-holding pattern and effective control of Jet Airways following the deal.
The companies submitted a revised proposal in July, which took into account the various concerns raised by the Securities and Exchange Board of India, or SEBI, the nation's stock market regulator; the aviation ministry; and the Foreign Investment Promotion Board, or FIPB. The revised proposal was cleared by the Cabinet without any conditions and the proposal now awaits clearance from the Competition Commission of India, or CCI.
“This is good for civil aviation and for passengers,” Ajit Singh, civil aviation minister told reporters on Thursday, after the meeting of the CCEA chaired by Prime Minister Manmohan Singh. “Now it’s an open case, CCI can clear it anytime.”
According to local media reports, CCEA has given the nod for the deal with conditions that both Jet and Etihad will comply with all Indian laws and regulations, and will take prior approval from concerned Indian regulators before making further changes to the shareholding pattern, Articles of Association and other agreements.
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SEBI had objected to a provision in the original deal that could have triggered a mandatory open offer for purchase of shares from public shareholders, and said that Etihad cannot be considered a promoter entity in Jet Airways after the completion of the deal. The aviation ministry and FIPB had also raised concerns over a proposed shift in the place of business, worried that the deal could give excessive control of the India-based airline to Etihad.
SEBI also asked Jet's promoters to divest a 6 percent stake before selling the 24 percent stake to Etihad. After the culmination of the deal, Jet's promoter Naresh Goyal and his wife, Anita, will hold a 51 percent stake, while Etihad will own 24 percent, and the remaining 25 percent stake will be with public shareholders.
In the revised proposal, Jet and Etihad adhered to conditions placed by SEBI and FIPB following which the company secured approval from FIPB on July 29, while SEBI gave its nod on Oct. 1.
The Indian government, in September 2012, had relaxed rules to allow foreign companies to hold a stake of up to 49 percent in India's airline companies.
Shares in Jet Airways rose as much as 7.2 percent on the BSE Sensex benchmark stock index on Thursday after the cabinet approved the deal, and the stock was trading 2.22 percent up in Friday morning trade.