The deal structure between Jet Airways and Etihad Airways has once again come under criticism from proxy advisory firms with Stakeholders Empowerment Services (SES) saying that the Indian aviation major’s proposed amendments to the articles of association suffer from a lot of governance issues.
According to SES,some of the proposed changes would give special privilege rights to Etihad and also lead to a scenario wherein all shareholders would not get equitable rights. The advisory firm has asked shareholders to vote against the resolution at the EGM scheduled on May 24.
The company is adopting a new set of articles of association,but has not identified the changes made in the articles. This makes the disclosure totally ineffective unless a shareholder compares previous set of articles and proposed articles line by line. Therefore,SES believes that the disclosures made by the company are not transparent, says the report. In April,Jet approved a decision to allot 2.73 crore shares on a preferential basis to Etihad for around Rs 2,060 crore. After the allotment,Etihad will hold 24% stake in Jet,while promoters will have 60.80% stake. The deal values Jet at nearly Rs 8,500 crore.
SES,which is headed by JN Gupta a former executive director of Sebi,says that the proposed amendments restrict the rights of the promoters to sell/ transfer shares without the written consent from Etihad. Although this does not affect rights of other shareholder,it reflects additional rights to Etihad, it says.
In another instance,according to SES,Etihad is being provided special privilege (not provided to other shareholders) to gain access to company records and resources to carry out due diligence review in case it decides to transfer its shares.
SES believes that each shareholder should get similar rights irrespective of its shareholding in the company. Further,a particular shareholder (or class of shareholder) should not get access to information which is not available to other shareholders, states the report. SES has further stated that one of the amendments that provides that a general body meeting would not meet the quorum requirements unless at least one representative of the promoter and investor is present also appears to be violating the Companies Act.
This is not the first time that SES has raised its objections to the Jet-Etihad deal. Earlier,it had said that Etihad cannot be treated as a public shareholder and has to be treated as Person Acting in Concert (PAC) with the current promoter and an open offer is a must in the deal. SES had based its analysis on the fact that the press release regarding the deal mentioned that current promoters would hold only 51% post an offer for sale to comply with minimum public shareholding norms,which will also see Etihad’s stake at 24%.