Govt puts lock-in for IA sell-off

Govt puts lock-in for IA sell-off
RUPALI MUKHERJEE

NEW DELHI, FEB 10: The government has put in a five year lock in period for the strategic partner which will acquire 26 per cent equity stake in Indian Airlines. Industry sources said that the clause is proving to be a hurdle for bidders in bringing in foreign investors, who are allowed to acquire up to 10.4 per cent stake, as partners.

The government has put further conditions on the strategic investor’s exit from the airline after five years. The first right of refusal lies with the government in case the strategic investor wants to exit from Indian Airlines.

“No venture capital investor or foreign investor is comfortable with a lock in period as they may find five years lock-in too long a period to wait for returns on their investments”, industry sources said. The government’s argument is that an investor will come for strategic reasons. “This may not be possible as only a foreign airline will invest in another airline for strategic reasons and the government does not allow that,” sources countered. For the first five years, the strategic investor is only permitted to transfer its share holding to its own subsidiary.

In case the strategic partner plans to quit after five years, the valuation of his share holding will also be subject to approval of the high court judge appointed for this purpose by the government. “The government will not allow a market valuation of the strategic partner’s equity holding”, sources said.

The bidders also feel that the constitution of the board keep the balance tilted in favour of the government. This is because out of the 11 directors proposed for the IA board, the government and strategic partner will nominate four directors each but the balance three independent directors will also be nominated by the government.

For Indian Airlines, the government has invited a strategic partner for divesting its 26 per cent equity stake. The strategic partner may be an Indian company or a non-resident Indian. As the draft civil aviation policy allows 40 per cent FDI in domestic airlines, the strategic partner is permitted 10.4 per cent FDI in the domestic carrier. According to the expression of interest, the proposed 26 per cent share holding can be acquired by Indian nationals or companies which are “majority owned and effectively controlled by Indian nationals”.

NRI and overseas corporate bodies are permitted to invest up to 100 per cent in domestic aviation under the proposed policy. The strategic partner, qualified to pick up stake in the domestic carrier, should have a combined group net worth of over $225 million. In keeping with the terms of the domestic air transport policy, foreign airlines have not been permitted to participate in the sale of shares of the domestic carrier. The government has also decided to give away another 25 per cent to IA employees, financial institutions and public.