Etihad need not make open offer for Jet shareholders: Sebi

In a major relief for Jet Airways and Etihad, market regulator Sebi today said the Abu Dhabi carrier does not have to make an open offer for Jet shareholders pursuant to the Rs 2,060 crore stake deal between them.

Clearing the regulatory hurdles for the high profile deal, the Securities and Exchange Board of India (Sebi) also ruled that Etihad "has not acquired control over Jet".

Etihad has purchased 24 per cent stake in Jet Airways in a deal worth about Rs 2,060 crore deal which was announced in April 2013.

"...the fact that existing promoters hold 51 per cent shares and voting rights in Jet strengthen the stand of Sebi as communicated to Ministry of Finance vide letter dated September 25, 2013 that Etihad cannot be termed as a person acting in concert along with the existing promoters of Jet under... Takeover Regulations, 2011," the regulator said in its 17-page order.

Under Sebi norms, an entity acquiring control in a listed company has to make an open offer to the target firm's shareholders.

The deal, which was restructured last year to address concerns raised by Sebi and Competition Commission of India (CCI), was consummated late in 2013.

While clearing the deal, CCI had observed that Etihad was getting "significant rights" and "joint control" in running Jet Airways. The two carriers later petitioned CCI to remove this observation, but the plea was rejected.

Following Competition Commission's observations, Sebi had decided to have a fresh look at the deal. The capital market watchdog mainly looked into whether Etihad and the existing promoters of Jet were persons acting in concert (PACs) for the purpose of alleged 'joint control' over Jet.

Besides, Sebi also checked whether the rights of Etihad under the transaction documents confer 'joint control' over Jet to Etihad.

Sebi had issued a show cause notice to Jet promoters Naresh Goyal and Anita Naresh Goyal, Tailwinds and Etihad on February 11, 2014.

According to Sebi, a conclusion of the Competition Commission that two parties are in joint control over an enterprise does not automatically lead to establishing joint control for the purposes of the Takeover Regulations, 2011.

Sebi Whole Time Member Rajeev Kumar Agarwal said in the order that "one regulatory agency may be guided by the findings of other regulatory agency on a particular issue only if the two laws are pari materia in their substance and are being applied on the same set of facts and circumstances".

Etihad had submitted that changes made to various agreements were to ensure that there is absolute certainty that "effective control" of Jet is and continues to vest in Indian nationals and the board of Jet.

With regard to the issue of control, the order said that in the Jet board, having a strength of 12 directors, Etihad's power to appoint two directors does not result in conferring control of Jet to Etihad under the takeover regulations.

Jet board's chairman who has a casting vote at all meetings, shall be a nominee of promoters of Jet. In the absence of the chairman, subject to board approval, the vice chairman (nominee of Etihad) can chair the board meetings of and "would not have any casting vote".

"In the light of these facts, I am of the view that Etihad's nominee chairing the meetings of board in absence of the Chairman would also not confer any control over Jet to Etihad as defined in... Takeover Regulations, 2011," Agarwal noted in the order today.

The market watchdog further observed that power of the Jet board to control the policy decisions has not been affected by the 'Commercial Cooperation Agreement (CCA)' between the two airlines.

In this regard as well, Agarwal said that CCA clauses "do not confer control over Jet to Etihad along with the existing promoters of Jet".

Jet-Etihad deal has already gone through several rounds of regulatory hurdles - mostly on differences of opinion about whether Etihad was getting full or joint control of Naresh Goyal-led Indian carrier.

Commenting on the Sebi order, global consultancy KPMG said the decision will allow Jet Airways to bring in the much needed funds and leverage the synergy benefits of the Etihad network.

"The new government should consider raising the FDI limit in airlines from 49 per cent to 100 per cent as per the Mayaram Committee report," it added.

Partner and India head of aerospace and defence at KPMG, Amber Dubey said: "All the precious man-hours spent by government agencies and regulators on evaluating a subjective concept called 'control' in a private corporate entity could have been put to better use."