Sun TV Networks honcho Kalanithi Maran may be close to picking up a substantial stake in India’s second largest low-fare airline SpiceJet Ltd, said sources familiar with the development.
The deal involves Maran picking up the stake held by WL Ross through convertible instruments thus marking his foray into the aviation business. Maran is also expected to buy the stake held by Goldman Sachs, which recently converted bonds held by it to a 6% stake, giving the media baron around 37% stake in SpiceJet.
Markets has been abuzz with rumours about Wilbur Ross visiting India to clinch an exit deal with Maran, the tough negotiator, emerging as the front-runner. One source said, Maran’s offer to Ross was at a discount to the scrip’s 52-week-high of Rs 64 but this could not be confirmed
In 2008, WL Ross, a turnaround artist, had subscribed to convertible bonds at Rs 25 per share in the midst of the global economic meltdown. Interestingly, the SpiceJet counter lost 0.52% to close at Rs 57.85 on BSE even as the benchmark Sensex vaulted 264 points on Thursday.
If the deal goes through, Maran will show up with the mandatory open offer for an additional 20% stake as per SEBI guidelines. The development comes at a time when SpiceJet had announced $75-million fundraising either through ADR, GDR or QIP.
Other Indian business groups looking to enter the airline industry like Malvinder and Shivinder Singh-owned Religare Voyages and Anil Ambani’s ADAG group are also reported to be in the fray for SpiceJet.
Wilbur L. Ross invested $80 million in Spicejet in July 2008 through foreign currency convertible bonds. Upon conversion, these bonds could amount to around a 31% stake in SpiceJet, which declared its maiden annual profit of Rs 61.4 crore this year.
An email sent to Kalanithi Maran did not elicit a response. A Spicejet spokesperson said: “As a policy, we do not comment on market speculation and rumors.”
Goldman Sachs recently picked up around 6% stake in Spicejet by converting warrants into equity. The warrants were converted into 1.5 crore equity shares of Rs 10 each at a premium of Rs 29.5 a piece. It is not known if the promoter Kansagra family, which holds around a 12%
stake through Royal Holdings Services Ltd, is also selling his stake to Maran. Ishtitmar Capital World, the investment arm of Dubai World, will also its convert bonds for a 9% stake in Spicejet, said Economic Times today.
According to Mahantesh Sabarad, a Mumbai-based analyst at Fortune Equity Brokers India Ltd, the environment in the Indian aviation industry is quiet friendly now as far as the investments are
concerned. He told VCCircle, “There is about 15% growth in the number of passenger traffic in the domestic industry.”
However, there is no room for further consolidation in the aviation industry. Major consolidation is already over with the mergers of Jet Airways- Air Sahara (now JetLite) and Kingfisher Airlines-Air Deccan. Now the industry will witness the growth of low-cost operators such as SpiceJet, GoAir and Indigo and newcomers such as Star Aviation in the future.
Maran’s entry could be a possible game changer for Spicejet, which will now be able to get a strong strategic investor with deep pockets. “The entry of a mature entrepreneur like Maran is good for the Indian aviation industry just emerging from its worst years. He (Maran) has a track record of running stable profitable ventures, and may get to helm an airline that has just turned the corner,” Sanjay Jain, Director, Taj Capital said.
While Spicejet can mount a strong challenge to its arch rival IndiGo in the low-fare segment even industry leaders, Naresh Goyal of Jet Airways and Vijay Mallya of Kingfisher, will be forced to take note of the low-profile but well-networked Maran’s entry into the sector. The politically influential Maran family could play a positive role in steering the heavily cyclical industry’s case (many carriers including Air India is still swimming in debts) with the establishment.
The domestic aviation market is currently dominated by Jet Airways and Kingfisher. While Jet Airways, including JetLite, has a market share of 25.9%, Kingfisher Airlines has 21.4%, according to DGCA data. Another major private carrier which directly competes with Spicejet in the low-fare space is Indigo, which has a 15.7% market Share while Spicejet holds a 12.6% market share.