Global carriers, PE firms join race to acquire 24 per cent stake in Jet Airways
Global carriers Lufthansa and KLM-Air France, bulge bracket private equity funds including the Blackstone Group, KKR & Co and TPG Capital have joined the race along with US airlines Delta to invest around $200-250 million in India’s second largest airline Jet AirwaysBSE -0.14 % is looking to raise capital to fund operations, face growing competition amidst severe macro headwinds, said multiple sources in the know. Jet Airways, in which Abu Dhabi’s Etihad Airways owns a 24 per cent stake, has adopted a network strategy independent of its investor and has roped in JP Morgan to raise funds, including through a possible stake sale. However talks with the potential investors are not yet advanced and no binding offers has come in, the sources mentioned above cautioned. Indian rules allow 100% FDI in scheduled commercial airlines but foreign airlines, though, are barred from holding equity stake in Indian carriers above 49 per cent. With Etihad already on board, Jet only has limited headroom and can bring on board another strategic partner by selling up to 24% stake in the airline. With a current market cap of Rs 6,880.59 crore, a 24 per cent stake sale could help raise Rs 1651.2 crore ($256 million). “Jet Airways does not comment on speculation. As a listed entity, all material decisions are taken by the Company’s Board and duly conveyed at the appropriate time,” Jet Airways spokesperson told ET. Spokespersons of Blackstone, KKR and TPG and Lufthansa all declined to comment. The Lufthansa spokesperson added, “We would like to add that with a presence of over half a century, India is a strategic market for Lufthansa Group and we are committed to increase our offerings by introducing our latest and most innovative products and services and by providing unrivalled connectivity.” Mails sent to AirFrance-KLM did not generate a response till the time of going to press. GLOBAL CONNECT Analysts say, a transaction, if successful, will provide necessary firepower for Jet in its expansion plans as the deal is coming at a time, when Jet’s larger rival Indigo is negotiating with the India government to acquire shares of the country’s biggest carrier, state-run Air India, which the Modi-government plans to privatise. Jet’s net debt in FY17 stood at Rs 5937 crore ($920 million). The Jet’s second largest shareholder U.A.E’s Etihad may also infuse fresh capital into the company, preferring to stay invested. However, late last year Etihad Aviation Group sacked its CEO James Hogan, who led an expansionist strategy. With a new interim management structure in place, aviation industry watchers say the future role of Etihad in Jet is not clear. There has also been persistent industry chatter than it is not willing to capitalise Jet any further. “With the founding leadership of Jet Airways back in the driving seat, it has been the intention of Naresh Goyal to take back total operational, financial and management control of Jet Airways. Although the management ‘takeover’ by Goyal did take place nearly 18 months back, the option to find a buyer for 24 percent, which is nearly to the stake Etihad holds of the airline, clearly suggests Jet Airways’ intent to buy back Etihad’s stake,” feels Mark D Martin, Founder & CEO at Martin Consulting, an aviation consultancy firm. Goyal’s move, feels Martin, “clearly is strategic and potent since Etihad at the moment is closely reviewing its global airline investment in the wake of the recent Air Berlin judgement. So we believe Etihad opting for an exit option, might just be perfect timing considering Etihad’s global investment operational control meltdown.” Etihad however has clarified last week — following media reports that Jet Airways is in exploratory talks to sell a minority stake to Delta Air Lines — that it remains committed to its strategic partnership with its Indian partner that operates 257 services each week, each way between Abu Dhabi and 15 cities across India. STRENGTHENING EXISTING TIES? For international carriers like Lufthansa and Air France-KLM, both of whom already have commercial ties with Jet, an equity partnership will give them better access to the Indian market, which is not just the largest growing market in the world but also a market, where Middle Eastern carriers have higher market share than the European carriers. Jet Airways, through its domestic as well as international network, can also feed into the networks of these international carriers. Any such pact will be a big plus for Jet Airways too as it will give Jet Airways’ access to the wide international network of these carriers. Currently, Jet Airways is the second largest international carrier out of India with a market share of about 15%. The national carrier Air India leads the pack with a market share of 17% in terms of outbound traffic out of India. Jet Airways has recently announced strengthening its codeshare with Delta and Air France-KLM, which will enable Jet Airways access to as many as 43 European destinations via the airline’s European hub Amsterdam and 27 via Paris besides 34 in North America. Jet Airways also has codeshare arrangements with Lufthansa, which has a large number of codeshare flights with Air India, as the national carrier is the only Star Alliance member in the country. Lufthansa had, in the past, tried to rope in Jet Airways as the second Star Alliance member from the country but that could not take off after Etihad bought stake in Jet Airways. ET had first reported about Jet’s ties with KLM Royal Dutch on September 27, 2016, months before the airlines announced the deals. Even though PE funds traditionally stay away from a volatile industry like aviation, investors like TPG have mined the sector extensively across the world, being part of the consortium that bought Continental Airways in US. In India, TPG said investment banking sources, had explored investments in both Jet and Kingfisher in the past while JP Morgan’s PE arm had backed Ajay Singh when he took over the troubled SpiceJetBSE -3.31 %. Both KKR and Blackstone have backed air
Former promoter Kalanithi Maran seeks over Rs 2,000 crore compensation from SpiceJet
SpiceJet’s former promoter, Kalanithi Maran of Sun Group, has sought over Rs 2,000 crore compensation from current promoter Ajay Singh and the airline for allegedly causing losses by failing to honour contractual obligations. SpiceJet told ET “the question of damages does not arise”. The claim for compensation has been filed before an arbitral tribunal comprising retired Supreme Court judges Arijit Pasayat, Hemant Laxman Gokhale and KSP Radhakrishnan. The tribunal was created in end 2016 under orders of the Delhi High Court and is adjudicating on a share transfer dispute between Maran and Singh. Hearings before the tribunal are ongoing and are expected to conclude in two months. Maran’s Rs 2,000-plus crore compensation claim, people close to him said, is based on losses incurred because of SpiceJet’s alleged failure to issue convertible warrants and preference shares to him and his KAL Airways. They said if compensation was not forthcoming, Maran will seek restoration of the status quo ante on SpiceJet’s ownership. A SpiceJet spokesman, responding to ET’s questions, said: “We can’t comment on the specifics due to the ongoing arbitration… (but) the question of damages does not arise”. “The entire issue was subject to approval of regulatory bodies… this permission was also denied when the previous promoter was in control and had applied for the same permission,” he said. Maran, who owns the Sun TV networkBSE -1.25 % in Chennai, has hired Washington DC-based FTI Consulting, which specialises in estimating financial damages due to breach of contract, for the arbitration. FTI personnel are expected to testify before the tribunal later this week. One of the persons quoted above told ET the loss to Maran is calculable on the basis of 18.91 crore warrants issued at a conversion price of Rs 16.30, and SpiceJet’s current share price of around Rs 125. This person also said the airline was paid Rs 679 crore for the warrants and preference shares. “Neither has SpiceJet issued the warrants or preference shares nor returned the money,” he said. Sun Group chief financial officer SL Narayanan did not answer calls and text messages. In a July 3 order, the Delhi High Court asked SpiceJet to deposit a total of Rs 579 crore – Rs 329 crore in the form of “bank guarantee” by July 31, and Rs 250 crore in cash deposit by August 31 – in connection with the share transfer dispute. The court ruled that Rs 100 crore (Maran has claimed Rs 679 crore was given to SpiceJet) was not paid directly to the airline but was used as bank collateral. The persons close to Maran, who had moved the Delhi High Court last March over the share transfer dispute, said the Rs 679 crore was used to stave off closure of SpiceJet and pay off statutory liabilities. SpiceJet was forced to stop operations for a day in December 2014 due to a severe cash crunch. The SpiceJet spokesman told ET: “This amount was utilised to discharge statutory liabilities and discharge and release the previous promoters from personal guarantees/assets.” The February 2015 deal that saw Singh becoming SpiceJet’s promoter had Maran and KAL Airways, his investment vehicle, transferring their entire chunk of Rs 35.04 crore equity shares, equivalent to 58.46%, to Singh for Rs 2. Singh, a co-founder of SpiceJet, assumed the airline’s liabilities of around Rs 1,500 crore. NO CAPITAL INFUSION SpiceJet’s filings with the Bombay Stock Exchange (BSE) show there has been no capital infusion as of March 2017. SpiceJet responded by saying its operations have been “carried out efficiently and hence the company did not see any requirement for further funding”. Singh and his family currently hold 60.25% in SpiceJet; his shareholding was around 2% before Maran exited. SpiceJet had told the Delhi High Court too that lack of regulatory approval was the reason for not issuing warrants. BSE and capital markets regulator Sebi, the airline had said, had refused to grant approval on the ground that promoters of the company had changed. The court’s July 3 order, however, observed SpiceJet did not initiate any action to challenge the stand taken by Sebi and BSE. Spice-Jet’s plea is “feeble and ineffective”, the court had ruled. SpiceJet told ET that while it did not wish to comment on the court’s opinion, the “company actively followed up with BSE and Sebi on multiple occasions post Ajay Singh’s takeover”. Laken Tomlinson Jersey
BoA defers decision on Adani’s Mundra power transfer
The commerce ministry has deferred a decision on allowing Adani Power to transfer its Mundra power plant to a subsidiary. The board of approval (BoA) on special economic zones decided to defer the transfer proposal to ascertain whether the company has taken the approval of its lenders. The BoA approval is required as the thermal power plant falls in the Adani Ports SEZ, government sources said. “The Board of Approval, after discussions, decided to defer the proposal and directed the development commissioner to ascertain whether NoC of lenders had been taken as it was noted that the proposed transfer of the thermal power plant in Adani Ports SEZ, Mundra with Adani Power Ltd to its subsidiary was being done without transfer of liability of debt”,” a commerce ministry official said. Adani Power had on June 7 said that its board of directors approved transfer of the 4,620-mw imported coal based plant in Mundra to a separate subsidiary, Adani Power (Mundra) Ltd, through a slump sale. The company has offered a 51% stake in the project to Gujarat electricity generation company for Re 1. Jerry Hughes Womens Jersey
Piyush Goyal urges states to clear arrears of renewable energy companies
The central government is persuading states to clear their arrears to renewable energy companies, which are faced with the challenge of repaying debt amid muted cash flows, power minister Piyush Goyal said The government’s thrust on clean energy enthused private players and lured big corporate houses like the Tata and Mahindra and several independent power producers into the sector. But state-run power distribution companies have been delaying payments, sometimes due to their own financial constraints but in some cases also because of their unwillingness to pay for renewable energy which is not as stable in supply as that from conventional sources, power producers told ET. “One or two discoms have been delaying. We are working with them to resolve the issue. It is a state issue and we can only persuade them,” Goyal told ET. ET spoke to green energy companies which said while the delays by state discoms have reduced, that continues to be high, making cash management difficult. Sector players list Tamil Nadu, Maharashtra, Madhya Pradesh, Andhra Pradesh and Rajasthan among the ones delaying payments. “States like Rajasthan and Tamil Nadu are delaying payments due to their inherent financial stress. Counterparty credit risk is anyway high for renewable energy companies and cash flow problems make it worse,” said Sabyasachi Majumdar, group head for corporate sector ratings at ICRA. In a recent interview to ET, Tata Power Renewable Energy’s chief executive, Rahul Shah, said while the government was pushing for more renewable energy, there were “subtle pulls” from state discoms discouraging these generators. He had said given the financial constraints these discoms operate with, they were “prioritising” payments to generators who offered firm supply of electricity, which meant the thermal power generators, over the renewable energy. Two other industry executives agreed with him, adding that wind energy makers were worst hit as some discoms contracted power at higher tariff and as electricity prices fall, they were not keen to buy power. “Maharashtra was an outlier last year with delays of 12 months but it has improved somewhat now. In general, payments from discoms have improved since March with average overdue being around two to three months. “Only in worst case the delays are around six months. This too may not be to discriminate against a particular class, for instance wind power, but more due to their own financial constraints,” said Sumant Sinha, chairman of ReNew Power, a solar and wind energy company. Johnny Bucyk Jersey
No nuclear power for states that oppose it: Power minister
States where governments or people oppose nuclear power projects are unlikely to get it, said Union power minister Piyush Goyal, toughening the Union government’s stand against opposition to nuclear power reactors. Tamil Nadu will get more power from the upcoming units 3 and 4 of the nuclear power reactor in Kudankulam in Tirunelveli district of Tamil Nadu, the minister told reporters on Monday after meeting chief minister K Palaniswami at the secretariat. “We are working on a new power allotment formula for states. When the Kudankulam units 3 and 4 are ready, Tamil Nadu will get more power. This was discussed during the meeting with the chief minister,” said Goyal. The minister assured the chief minister of allotting a separate coal block for Cheyyur thermal project. A special purpose vehicle will be floated for setting up an ultra mega thermal power project in Cheyyur with a total capacity of 4,000MW. There will be four units of 800MW each. The total cost of this project is Rs 18,000 crore and Tangedco will get 1,600MW once all four units are up and running. The other issues which were discussed between Goyal and Palaniswami include a separate corridor for green power. “The green corridor was discussed and I can assure you Centre will do everything to extend cooperation for setting up a separate corridor for green power. I am happy to know that Tamil Nadu has surplus green power,” said the minister. In the last three years, a transmission capacity of 3,450MW has been added and in 2020, the total transmission capacity for south India will be 18,000MW so that states can either evacuate power to other states or get power from other states. “Due to goods and service tax (GST), the coal tax rate has come down to 5% and because of this NLC will save Rs 508 crore each year. Similarly, Tangedco must also save money on purchase of coal. NLC will be allowed to use its old thermal unit till 2018,” said Goyal. On solar pumps for farmers, the minister said discussions were on with various people to provide solar pumps for farmers. The minister said the meeting with the chief minister was fruitful and recalled that he sat on the “same chair in the same room” when he met former chief minister J Jayalalithaa last year. “It is only after my meeting with her, Tamil Nadu decided to join the Uday scheme,” said Goyal. The minister said barring one state in the eastern region, all other states in the country have joined the Uday scheme. “The losses of Tangedco has fallen from Rs 14,000 crore to Rs 3,500 crore. This will help Tamil Nadu power consumers to get quality power,” said the minister. Carlos Santana Womens Jersey
Shell sees rising investment in renewables
Royal Dutch Shell will be spending up to $1 billion a year by 2020 on projects within its new energies division, Chief Executive Ben van Beurden told an industry conference on Monday. Shell set up the division to focus on renewable energy and new technologies to help lower carbon emissions. “Shell is determined to find solutions and will be spending up to $1 billion a year on our new energies division by the end of the decade,” van Beurden told the conference. Aaron Donald Womens Jersey
China tops in renewable energy production: BP Statistical Review of World Energy
China surpassed the US as the top producer of renewable energy in 2016, according to the latest BP Statistical Review of World Energy released on Monday. Renewable power, excluding hydro power, in the world grew by 14.1 per cent in 2016, the biggest increment on record, Xinhua news agency cited the report as saying. Although the share of renewable power within primary energy was just 4 per cent, its strong growth meant it accounted for one-third of the increase in primary energy, the report indicated. China continued to dominate renewable growth, contributing about 40 per cent of global growth — more than the entire OECD — and surpassed the US as the largest producer of renewable power last year, said BP chief economist Spencer Dale. China also provided the main source of world growth for both hydro and nuclear power. Global hydro power rose 2.8 per cent in 2016 from a year ago, with more than 40 per cent of growth from China. In the meantime, global nuclear power went up by 1.3 per cent or 9.3 million tonnes of oil equivalent, with China contributing almost all the growth. Carbon emissions were essentially flat over the past three years, Dale said, with China again the key player. The BP data showed carbon emissions in the world rose slightly by 0.1 per cent in 2016, while in China, the emissions fell 0.7 per cent from a year ago. “China’s carbon emissions are estimated to have actually fallen over the past two years, after growing by more than 75 per cent in the previous 10 years, and some of the improvements reflects structural factors that are likely to persist,” Dale said. Jimmy Graham Authentic Jersey