Jet plan to mop up funds slows over OCB stake

New Delhi: The cash crunch imposed by restrictive government policies is hurting the domestic airline sector, despite the Indian economy beginning to accelerate again in 2010-11. Among the country’s three largest airlines, Jet Airways is best-placed to raise capital both from the international market and from within India, but has to contend with a foreign investment cap of 49% for the civil aviation sector.
A policy mismatch has ensured that Jet Airways, despite having the largest fleet strength among the three airlines, has an equity structure out of whack with sectoral rules. It was born from an ‘overseas corporate body’ (OCB) Tail Winds in the early nineties, but a mid-stream policy restriction in 2003 hit the company’s plans. Foreign investment policy was changed in the wake of the stock scam, designating OCBs as foreign entities despite being majority held by non-resident Indians. Jet’s equity structure, therefore, soared overnight making it a ‘foreign-owned’ airline.
Jet’s board cleared a proposal to raise around $400 million. But any issue of depository receipts or foreign currency convertible bonds will breach the 49% cap. In fact, Jet is working out means to offload its foreign holding to domestic investors to comply with the norms.
The airline’s low capital base could impact its plan to expand its routes fast. Last December, the civil aviation ministry had said the foreign holding in the company was in violation of prevailing foreign direct investment (FDI) guidelines for air transport sector and asked the company to comply with the law in three years.
21/09/10 Nirbhay Kumar/Financial Express

To Read the News in full at Source, Click the Headline

Categories: Jet Airways Sep 2010