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MUMBAI: After intense speculation for several months, India's largest airline by way of market capitalisation - Naresh Goyal-promoted Jet AirwaysBSE 0.80 % - on Thursday confirmed that it is in talks for a stake dilution with Abu Dhabi's Etihad Airways.
In a communique to stock exchanges, the airline said: "Jet and Etihad are in a discussion regarding a potential investment by the latter in the former, these discussions have commenced recently pursuant to the liberalised FDI policy which permitted foreign investment in the shares of an Indian airline. The discussions are in progress but no terms have been firmed up at present."
Jet has been consistent in the past not to ascribe any credence to reports stating that those media reports are 'speculative'.
The proposed deal, sources told ET, is in the works and is likely to be announced by the end of this month. The Jet-Etihad deal was first reported by ET in its September 19 edition. The proposed deal will need several regulatory hurdles to be sorted out from both sides.
The investment from Etihad, if it happens with Jet Airways will be first such investment made by a foreign carrier after the government last year allowed international carriers to invest in Indian aviation companies.
According to a source, the Mumbai-office of law firm Amarchand Mangaldas & Suresh A Shroff & Co (AMSS) is advising Abu Dhabi-based-Etihad Airways for the proposed deal and Clasis Law is representing Jet. "AMSS has got the mandate and the law firm is going through the due-diligence of over 150 documents," said a person privy to the deal.
The source said that Jet is likely to get a huge premium for the strategic deal as the airline is being valued at Rs 7,875 crore. Its current market capitalisation is about Rs 5,239 crore.
"The talks are for the minority stake of around 24% for close to $350 million, which will value the company over $1.5 billion," the same person said.
This valuation essentially means that Jet will get a deal that will be about 53 times of its current EBITDA levels of Rs 148 crore for March 2012. Jet's projected EBITDA for financial year 2014 is about Rs 1,874 crore. Jet's shares are trading at Rs 606.85 a share, gaining 4.70%, or Rs 27.25 a share on Thursday. If the deal fructifies with Etihad, the UAE airline will have to cough up a 50% premium to that price.
"It is essentially a strategic alliance so whatever Etihad ends up paying will be based on an assumption of a significant improvement in the EBITDA levels over two to three years' time," explained an investment banker.
The investment by Etihad, according to a person privy to the deal, would be made through a dilution of Naresh Goyal's stake (who holds 80%) in Tail Winds, the holding company for Jet Airways which is registered in Isle of Mann. But that mode of transaction could not be exactly ascertained as sources said that there is a possibility of a deal which will have some form of equity in the form of compulsorily convertible debentures, a deal structure that was done at the time of an investment made by US billionaire investor Wilbur Ross in budget airline SpiceJetBSE -1.69 %.
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