Aviation ministry agrees to 26% FDI in airlines

The civil aviation ministry has finally given the nod to adraft proposal for foreign airlines to pick up 26 per cent stake in Indiancarriers, according to reliable sources. Earlier, the aviation ministry wasagreeable to offer only 24 per cent stake to foreign carriers. A stake of 26per cent gives the foreign investor the right to block special resolutions onthe board and thus have a greater say in the carrier's business decisions.

 

Column: FDI in aviation not a solution for debt-ridden sector

A top official said that the civil aviation ministry had, onDecember 7, sent its response to a draft Cabinet note to the department ofindustrial policy and promotion (DIPP), which operates under the commerce andindustry ministry.

The proposal has already been given the nod by severalministries, including finance and home besides the Planning Commission. A nodby the civil aviation is the last in the chain of approvals needed for thecrucial move to become law soon.

"The voting right will attract foreign airlines and will bean incentive for them. Foreign airlines may not be interested if they areoffered less than 26 per cent stake as they will be deprived of the votingright," said an industry official.

Voting right is a right of a stockholder to vote on mattersof corporate policy and determine the constituents of the board of directors.Voting often involves decisions on issuing securities (debt), initiatingcorporate actions and making substantial changes in the carrier's operations.

The issue is now expected to be brought before the Cabinetfor formal approval and implementation.

The matter has already generated a lot of heat as politicalallies of the United Progressive Alliance- led Congress government at theCentre as well as the Opposition have flayed the idea of foreign carrierspicking up stakes in Indian carriers.

The finance ministry which has been desperately pushing for26 per cent FDI in Indian carriers now wants the DIPP to ensure that any suchpolicy conforms to the new takeover code, according to which investors have togo for an open offer if they acquire at least 25 per cent stake in a company.In case of air carriers, the ministry does not want the open offer norm to bemade applicable.

In the regard, DIPP has been asked to consult Securities andExchange Board of India (Sebi), as carriers like Kingfisher and Jet Airways arelisted companies.

The new takeover code, brought in by the Sebi in Octoberthis year recommends that any acquirer taking at least 25 per cent stake in acompany has to go for an open offer for another 26 per cent. If this is thecase then foreign airlines taking 26 per cent stake in Indian carriers will seetheir total stake going up to 51 per cent, which would automatically make themthe majority stake holder. The government would want to avoid such situationsat all costs.

Sources said that the DIPP is already working on the issuewith the Sebi and the matter would be brought to the Cabinet only when it isfinally thrashed out.

The government initiated the move to allow 26 per cent FDIby foreign airlines into domestic carriers against the backdrop of Kingfisherslipping into a severe debt crisis and several other Indian carriers laden withhigh debt on their books.

Courtesy: Mail Today