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28 March 2024

Istithmar may exit SpiceJet today

Fleet grounded as oil companies stop jet fuel supply to it (AFP)

Published
By Sachin Dave

Istithmar World, the international investment arm of Dubai World, which has a 6.87 per cent stake in India's SpiceJet, could exit the company completely today when Indian media baron Kalanithi Maran makes an open offer on the Bombay Stock Exchange.

SpiceJet, the second largest Indian low-cost carrier, has informed the stock exchange that Istithmar on Friday converted its Foreign Currency Convertible Bonds (FCCB) to equity.

The conversion of the FCCBs, valued around Dh75 million, is perceived to be a prelude to an exit.

Istithmar, however, declined to comment on exercising the exit option. In a reply to an e-mail query by Emirates Business, a spokesperson for Dubai World said: "We are not commenting on this at all."

According to the statement to the BSE, SpiceJet has allotted 64.01 million shares to five investors upon exercise of conversion option by FCCB bondholders. Istithmar World, one of the five investors, has been allotted 22.14 million shares. This step is taken as an indication that the company may consider an option to cash out of SpiceJet on Monday when an open offer will be made. It is speculated that Maran's open offer will be at Rs58 per share.

The development comes at a stage when Maran bought a 37.75 per cent stake in SpiceJet for Rs7.5 billion (Dh587 million). Maran is now slated to make an open offer for an additional 20 per cent stake in the company today, which means, he will end up with a majority stake just above 57 per cent.

The deal was struck at Rs47.25 per share quite a discount on SpiceJet's market price of Rs56.05 per share. Maran bought 30 per cent stake from Wilbur L Ross, one of the world's biggest distressed asset specialists and 7.7 per cent from the Kangsagra family, an earlier promoter of the airline.

"This is an opportunity for existing investors including Istithmar, Tatas and Goldman Sachs to exit from the company," an industry expert said. Istithmar, which was also an anchor investor in SpiceJet, sold 13.39 per cent stake to Reliance Mutual Fund, Birla Mutual Fund, DWS Invest BRIC Plus Fund in February. Istithmar had then raised about $37m (Dh136m) from the exercise.

Ajay Singh, a director at SpiceJet, had then told Dow Jones that Istithmar had sold the stake to local mutual funds for Rs53.8 per share. Dubai World has earlier said that it would be exiting some of its investments outside the UAE.

According to the Indian law, it is mandatory for any buyout of above 15 per cent to be followed by an open offer for another 20 per cent. It is speculated that Maran's open offer will be at Rs58 per share. The open offer will be more beneficial for bulk sellers or sellers who have substantial stake. Istithmar continues to be one of the biggest stakeholders in the company, as far as people who will have an exit option is concerned. An official with SpiceJet did not respond to the query. On an earlier instance, when asked about Istithmar's FCCB exit options, a spokesperson of SpiceJet had refused to comment.

Spicejet readies to go international

The investment in SpiceJet comes at a time when the airline nears completion of five years of domestic operations.

Indian civil aviation authority stipulates that domestic carriers will be allowed to fly overseas only after a minimum five years operations domestically. With a fleet of over 20 aircraft, the company recently got permission to fly Kathmandu, Male and Dhaka. The company is now planning to start its first international flight to Kathmandu and Male by the end of this year. If reports in the Indian media are to be believed, the firm may also explore the lucrative Gulf. It is believed that Kalanithi Maran is eyeing to get on to the bandwagon of international aviation operation with the acquisition of SpiceJet.