Will Istithmar's exit see Ross's SpiceJet pie rise?

On Friday, when the news of exit of one of the major stakeholders of budget airline SpiceJet Ltd — Dubai World’s private equity arm Istithmar — broke out, it intrigued almost everyone.
They were all asking the same question. Why did the West Asian investor divest its equity holding at a time when SpiceJet’s financials were on the upswing?
There are different theories for Istithmar’s move floating in the market. The obvious one is that the investment arm of the troubled Dubai World, which is saddled with huge debts, was in desperate need of money and had no other option but to offload its 13.4% in the Indian carrier.
But more interesting is the reading of an analyst, who did not want to be named. According to him, Istithmar’s departure from SpiceJet board could be strategic one. It could have been done to pave the way for turnaround investor Wilbur Ross to increase his stake in the company.
Ross faces the hurdle of foreign direct investment (FDI), which is capped at 49% in domestic carriers. Since FDI in the New Delhi-based low-cost airline is already touching the ceiling, there was a need to push out one of the foreign investors to make way for the US investor. Apparently, it had to be the beleaguered Istithmar.
Ross currently has a representative on the board.
Interestingly, Ross holds $80 million foreign currency convertible bonds that can be converted to equity by December 2010. If he opts for conversion, he can increase stake by 32%.
06/02/10 Praveena Sharma/Ramiya Bhas/Daily News & Analysis

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Categories: Foreign Feb 2010, spicejet Feb 2010