With the foreign investment promotion board (FIPB) set to take up the proposal of Abu Dhabi-based Etihad Airways R2,058-crore investment in Jet Airways on Friday,numerous procedural issues have cropped up that could create stumbling blocks for the proposal to be approved in its current form.
One of the issues on which government officials want more clarity is effective control remaining with Indian nationals,as per the FDI policy for civil aviation. The policy specifies that the substantial ownership and effective control of an airline should be vested with an Indian national.
Sources in the government said it has asked the department of industrial policy and promotion (DIPP) to clarify the term ‘effective control’. The clarity on the issue is crucial for clearing the Jet-Etihad deal as the government fears that Etihad might try to seek control with just 24% stake while promoter Naresh Goyal,who currently holds a 75% stake,is a non-resident Indian (NRI).
However,airline sources clarified that the share purchase agreement and the Articles of Association of the company have been reworked in a manner in which no ‘effective control’ is transferred to Etihad.
We have already reworked and submitted the share purchase agreement to the authorities, said an airline official. In the current form,with Etihad being treated as a ‘public’ shareholder and getting board seats proportional to its stake,we don’t see how there will be any problem.
Naresh Goyal is an Indian citizen residing outside India and a board nominated primarily by Indian owners will have complete control over management of the airline, said the official quoted above. We have been supported by good advisors on the deal and we are following the laws and regulations of the land.
As per the FDI policy for civil aviation,foreign airlines and foreign institutional investors can together invest up to 49% in an Indian airline. NRIs are allowed 100% investment in Indian airlines.
Under the current framework of the Jet-Etihad deal,after the transactions are cleared by the regulatory authorities,Naresh Goyal will directly own 51% in the airline while Etihad will own 24%.
Last month,FE had reported that the Jet-Etihad deal would get FIPBs approval only after the government notifies the new definition of control in a company,which is in line with the new Companies Bill. We don’t want companies to go ‘agency shopping’. The government will resolve the difference in the definition under various regulations before giving a final approval, a finance ministry official told FE recently.