3 foreign investors may take 40% in SpiceJet

The three currently hold foreign currency convertible bonds (FCCB) and warrants.

The three foreign investors in the countrys second-largest low-cost airline SpiceJet Wilbur Ross,Goldman Sachs and the government of Dubais Istithmar may become majority shareholders in the company by December this year. The three currently hold foreign currency convertible bonds (FCCB) and warrants,which would be converted into equity before the expiry of the bonds,SpiceJet CEO Sanjay Aggarwal told FE.

It is pretty definite now that the investment will be converted into equity,which will also retire the entire debt of $90 million on our books,making us completely debt free, he said. However,Aggarwal refused to comment on the route Ross may adopt to convert the bonds and warrants into equity. It is for them to decide,we have not yet had any talks with them on the issue, he said.

Ross,Goldman Sachs and Istithmar had together invested $100 million into the five-year old airline in 2008. Of this,Rosss individual investment was $68 million. A part of the FCCBs were converted earlier into shares. His equity in the company currently stands at 0.025% with two board representations in SpiceJet. However,once the bonds held by the three are converted into equity later this year,their combined shareholding will go up to around 40.27% and the promoters (the London-based Kansagra family) holding would be reduced to 7.69%. In that scenario,the foreign shareholding in the company will go up to around 48%,just under the cap of 49%.

However,Aggarwal said that following the change in the equity structure,there would be no change in the board composition and Ross would continue to hold two seats. We have already decided this and there will be no change, he said.

Since regulations require any company acquiring over 15% to come out with a mandatory open offer for another 20%,Ross is unlikely to take the direct conversion route,as that would breach the FDI cap of 49%. Since Ross investment in the company is $68 million,a direct conversion would give him a stake of 31%. We are aware of that issue. SpiceJet will be raising between $50-75 million soon,which would expand our share capital further,diluting the stakes, said Seema Chandra,CFO,SpiceJet. The airline has appointed financial services firm Edelweiss,along with IDFC-SSKI Securities,to assist in fund-raising. Though it will be tapping both the international and the domestic markets for it,Chandra said that the investment would be in a way that it doesnt disturb the foreign investment cap.

According to back of the envelope calculations,even if the company raises the entire $75 million from the domestic market,its stake will increase by 100 million shares,bringing down the stake of the foreign investors to around 32%.

Nevertheless,Ross shareholding will still be above the 15% mark at around 25%.

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The other route that Ross could take is to partly convert his FCCBs and go for an open offer with the option of keeping the rest or selling it off to another investor. Wilbur Ross and Istithmar had together invested $80 million (Rs 345 crore) in the airline in 2008 through FCCBs with Goldman Sachs investing another $20 million in the company through warrants.