SpiceJet, the Gurgaon-based low cost carrier, is believed to be sewing up a deal with the fund of WL Ross & Co, promoted by American turnaround investor Wilbur Ross. SpiceJet is also reportedly spurning the offer of Vijay Mallya’s Kingfisher Airlines following the disagreement on valuations and also the management control. The deal may go in favour of Ross because of better valuation and also the airline would be able to retain the brand and management control, reports suggest.
Ross may be issued fresh equity in the form of preferential shares, says a report in DNA, quoting sources. The report added that amount of funding by Ross may be restricted to Rs 200 crore as investment involving a buying a stake of more than 15 per cent will trigger an open offer, as per SEBI guidelines. Also there is a 49 per cent cap on foreign equity capital in a domestic carrier.
SpiceJet is advised by merchant banker N M Rothschild & Sons (India) Pvt Ltd. Interestingly Ross ran a private-equity fund within Rothschild for three years.
Mallya may lagging behind as he is believed to have offered SpiceJet a share-swap deal in the ratio of 1:3, which would involve exchange of three Spicejets shares for one Kingfisher Airline share, a report said. Kingfisher is privately held, though. If Kingfisher manages to acquire SpiceJet, it will emerge as the market leader in the Indian airline industry.
The sellers in the company include UK-based Kansagra family, which holds 12.91 per cent stake and Dubai based investment agency Istithmar, which holds 13.42 per cent stake (totalling 26.3 per cent stake). Other share holders in SpiceJet include the Tatas who have a 7 per cent stake and SpiceJet’s director Ajay Singh who holds 4.16 per cent. Other investors include BNP Paribas (4.53 per cent), Goldman Sachs, Citibank and HSBC.
On talks of a likely investment the share price of SpiceJet had zoomed up by 22 per cent to Rs 30.45 at the close of markets yesterday. The LCC has been in market to raise around $100 million to fund its future financial requirements. The airline industry is reeling under losses due to spiralling fuel prices and excess capacity and are expected to post a loss of in excess $2 billion in FY09. SpiceJet posted a loss of Rs 133 crore for the fiscal year 2008. The airline has also reduced the number of its daily flights from 117 to to 94 last month. SpiceJet has a market share of around 11 per cent and is has a fleet of 17 Boeing Co.’s B737 planes.
Wilbur Ross, is an American investor who specialises in distressed buyouts and is known for restructuring companies in failed industries. He has turned around companies in sectors like steel, coal, telecommunication, foreign investment and textiles. Ross does not have any investment in airline industry yet. Ross sold the Richfield, Ohio-based International Steel Group to Mittal Steel Company for $4.5 billion April 2005.