SpiceJet looks to rope in new investor

Mumbai, Feb 6: 
 
Gurgaon-based low-cost carrier SpiceJet has appointed the investment-banking arm of financial services company Edelweiss to find a strategic investor for the airline, which is looking to raise between $50-75 million for fleet acquisition and expansion plans. 
 
Three people familiar with SpiceJet's fund-raising plans said the low-cost carrier is in talks with south-based media baron and Sun TV promoter Kalanithi Maran. Earlier there were reports that Mr Maran was interested in buying into Star Aviation, a yet to be launched regional carrier for southern India. On Friday, we could not reach Mr Maran for a comment. 
 
"We need funds for future growth and expansion and would be exploring all options to raise the money. Edelweiss has been mandated to find investors for us," SpiceJet CEO Sanjay Aggarwal told reporters on Friday. Mr Aggarwal said he would not be able to comment on specific investors. 
 
The development comes close on the heels of the exit of one of SpiceJet's anchor investors - Dubai-based investment firm Istithmar, which on Friday sold a 13% stake for Rs 160 crore. "Two-thirds of the 24.1-million shares that have been traded were bought by domestic investors and the remaining shares were bought by a foreign institutional investor," Mr Aggarwal added. 
 
Analysts said SpiceJet, since its inception, has been struggling to find a stable promoter with a large holding. This has resulted in financial investors trading the stock as and when the market offered good value. 
 
"The reason why foreign investors find it difficult to hold onto stocks like SpiceJet is simply because they feel they have been blocked because of the FDI cap. Also, in SpiceJet, where there is already an existing foreign investor Wilbur Ross, other foreign investors have little play," said Jayesh Desai, national director, Ernst & Young. Foreign investors can hold not more than 49% in India's airlines, and foreign carriers are barred from holding a stake. 

 
SpiceJet had received $100 million of foreign investment when US billionaire Wilbur Ross, who along with investment bank Goldman Sachs, invested in the airline in August 2008.

Mr Ross's money came in by way of foreign currency convertible bonds or FCCBs, while Goldmans Sachs has a 2.3% holding. The largest shareholder in SpiceJet is Kenya-based Kansagra family, which owns 13%. 
 
Besides its direct holding Istithmar had invested $12 million in Spicejet through FCCBs, which, if converted into equity, is about 8.5% of SpiceJet's total shareholding. 
 
Istithmar has a single representation on the SpiceJet board and Mr Aggarwal refused to comment on his status. The buyers of the SpiceJet stock were DSP-Blackrock and Reliance Mutual fund, among others. The deal was arranged by Bank of America and Merrill Lynch. 
 
There was also speculation in the market that Istithmar has exited completely selling the FCCBs too at the Luxembourg Stock Exchange. Mr Aggarwal, however, denied these reports. "The fact that Istithmar has not liquidated these bonds indicates that they have confidence in the business model of SpiceJet." 
 
The timing of Ishtitmar's exit when SpiceJet is looking to expand with a net profit of Rs 109 crore in the December quarter and increasing market share has got analysts talking about the foreign direct investment (FDI) cap of 49% being a deterrent for foreign investors in Indian aviation. 

Also the fact that an anchor investor has exited at a time when aviation business environment is looking up has dented sentiment. A distress sale because of the Dubai crisis is also not ruled out by some analysts.