Etihad Airway’s bid to purchase a 24% stake in Jet Airways could be blocked after India’s capital markets watchdog raised concerns about foreign control of the airline, the Economic Times has reported.
The Securities Exchange Board of India (Sebi) has written to the Foreign Investment Promotion Board (FIPB) warning that control of India’s largest carrier could pass into foreign hands because of the nature of the Etihad-Jet deal, which is worth $379 million. The opposition could lead to a reworking of the deal.
The airlines have until July 31 to win regulatory approval but are at risk of missing the deadline due to political concerns and scrutiny by Indian market regulators. The deal would be the largest foreign investment in India’s aviation industry after the sector was opened up to foreign carriers last year and would provide Jet with cash to help pay off debts.
If it is found that Etihad would have a controlling stake in Jet, Etihad could reportedly be asked to make an open offer. However, such a move could also defy airline legislation that requires control to remain in Indian hands.
The regulator has also told the airlines the right to appoint board members should be proportionate to shareholding and that Etihad should not enjoy powers such as the right to appoint a vice-chairman and automatic representation on the audit committee.
“Etihad can’t insist that certain decisions be taken only with their consent,” a person familiar with the discussions reportedly said. “During the normal course of business, if Jet requests for Etihad’s representative on any committee to share its expertise, it is fine. But they can’t have it as a right.”
India’s foreign direct investment policy states an airline permit can be granted only to a company that is registered and has its principal place of business within India. The chairman and at least two-thirds of the directors also must be Indian citizens and substantial ownership and control must be with Indians.
