Ace private stock market investor Rakesh Jhunjhunwala has acquired 1.4 per cent stake in budget airlines SpiceJet, a move which sent the share price of the public listed firm rocketing 18.36 per cent on Friday.
Jhunjhunwala acquired 7.5 million shares in an open market transaction for Rs 13.41 crore (just over $2 million).
SpiceJet, which is controlled by media magnate Kalanithi Maran of Sun Group, has been in talks with various global strategic investors to raise capital after the previous government allowed FDI in domestic airlines.
However, it has been unable to sew a deal till now, apparently over valuation mismatch.
SpiceJet is the second-largest budget carrier in the country behind IndiGo. But competition is hotting up in the domestic aviation sector with entry of AirAsia and a separate full service airline Vistara, through a JV between Tata Sons and Singapore Airlines.
SpiceJet currently has a market cap of just under Rs 1,000 crore.
Maran owns 53 per cent in SpiceJet, which would push up further after he converts the outstanding warrants into shares.
He had acquired a large stake in SpiceJet four years ago and later bought more to get a majority holding.
He started by acquiring the shares held by Royal Holdings Services Ltd. and distressed assets investor WL Ross, in the firm.
In the first tranche he paid Rs 740 crore for a 37.73 per cent stake held by the then promoter family Kansagra and WL Ross at a share price of Rs 47.25 per share and later made an open offer at Rs 57.76 per share.
The current market price is just one-third of this.
The sharp drop in crude oil price bodes well for aviation firms but the rising competition means SpiceJet would not be able to make tonnes of cash immediately.
Fundraising has become essential for the budget carrier as accumulated losses have eroded the company’s net worth.
The budget carrier needs at least Rs 1,200 crore to stay afloat, as per a recent report by Sydney-based aviation think-tank Centre for Asia Pacific Aviation (CAPA).
(Edited by Joby Puthuparampil Johnson)