SpiceJet gets Rs 340-cr Ross funding

The US private equity fund house's investment, however, will not trigger an open offer

The board of directors of budget carrier SpiceJet has accepted US-based firm WL Ross' offer to infuse $80 million (Rs 340 crore) in tranches in the cash-strapped airline. The funding was needed by the carrier to stay afloat and fulfill aircraft acquisition commitments. SpiceJet had been looking for a $100 million funding for a while now.

The deal was brokered by Rothschild, the second biggest deal in the Indian aviation space after Air Deccan's acquisition by Kingfisher last year. However, the exact structure of the funding is not made known.

"The deal closing will take another two weeks or so and only after that will the details be made known. But all the regulatory requirements and foreign direct investment guidelines have been met in the structuring of the deal," Amitabh Malhotra, director, Rothschild, said.

There is a cap of 49 per cent for foreign investors in the aviation sector. The deal has been structured in such a way that it will not trigger a open offer, which is mandatory if the stake bought is over 15 per cent in a listed company.

WL Ross, which picks up distressed companies and turns them around, is likely to buy foreign currency convertible bonds (FCCBs) that Goldman Sachs and Dubai-based investor Istithmar, SpiceJet's shareholders, have in an escrow account. The bonds were issued in December 2005. Sources said that it was unlikely that any of the large shareholders in the company would lose any stake.

What swung the deal in favour of Ross, according to bankers close to the deal, was the commitment to the low-cost model.

"Though the external environment is the biggest villain in aviation right now, SpiceJet is one of the most efficiently run airline and is a value proposition. Here is the chance to prove oneself and this gives the fund the exact opportunity to do so," Malhotra said. It is not clear as to how long Ross will stay invested in SpiceJet. , though there are indications that the firm might seek to exit when things brighten up for the sector.

"As a result of this funding, the airline has adequate funding for the short and medium terms and as far as the investors are concerned, there is no preferential lock-in period of one year," said a banker close to the deal.

In a move to consolidate the board, Wilbur Ross, chairman and CEO, WL Ross and Ranjeet Nabha, the company's managing director in India, are expected to join the SpiceJet board of directors, said a company release.

WL Ross, a part of Invesco since October 2006, manages assets for institutional investors in the US, Europe and Asia. This is Ross's second investment in India. Ross acquired suit maker OCM India for $37 million in February 2007.

According to figures from the civil aviation ministry for June, SpiceJet is the second-largest low-cost carrier in India after Simplifly Deccan with a market share of 10.8 per cent. The carrier operates 94 flights a day with its 15-aircraft fleet.

Source: business-standard.com