Jet-Etihad deal: Agencies in consultation on 'control' issue
Mumbai: As Jet-Etihad deal continues to face regulatory hurdles, the government and market regulator SEBI Wednesday said consultations are underway between various agencies on whether the deal amounts to transfer of 'control' in the Indian carrier to foreign hands.
Naresh Goyal-led Jet announced in April that it wishes to sell 24 percent stake in the company to Abu Dhabi-based Etihad Airways in a deal valued at over Rs 2,000 crore.
But certain clauses of the proposed transaction hit the regulatory hurdles as they were seen to be giving the foreign carrier voting rights and other powers in excess of their shareholding.
Concerns have also been raised that the deal could amount to Etihad getting 'control' of the company with even 24 percent stake.
"The definition of control is there. In our point of view, it is (about) whether it will trigger an open offer or not... Various agencies are on board and are in engaged in consultations regarding this," SEBI Chairman U K Sinha said here at an investor awareness programme.
He was replying to queries on whether there was a difference of opinion among various government departments and regulatory agencies on definition of 'control' in the context of Jet-Etihad deal.
Speaking at the same function, Corporate Affairs Minister Sachin Pilot said that the consultations were underway on what 'control' would mean in the present case.
The Minister said the SEBI has a definition of 'control' in the context of takeover regulations, while new Companies Bill also provides a definition.
"There are no differences (between agencies) but we want a definite meaning of what control means and whether it is about the number of shares held by promoters to something else," the minister said.
Among others, the deal needs to be cleared by SEBI for takeover regulations, by Competition Commission of India (CCI) for fair trade norms and by FIPB (Foreign Investment Promotion Board) for FDI-related rules. The FIPB is expected to take up the matter on July 29 for further consideration.
FIPB had earlier sought views from SEBI and the Ministry of Corporate Affairs on the definition of 'control' to be applied in the present case.
As per SEBI, an acquirer can get control of a target company even with the purchase of a minority stake in absolute terms provided it gets powers like greater voting rights and a larger say on appointment of directors etc.
SEBI rules require an acquirer, buying 25 percent or more stake in a listed firm, to make a mandatory open offer for purchase of further 26 percent stake from public investors.
However, takeover regulations for making a mandatory open offer would also apply to any entity buying stake of less than 25 percent if it is getting 'control' of the target entity.
Jet has so far maintained that it would comply with all relevant regulations on this deal and there have been talks that the deal could be re-structured to meet the norms.
As per the deal, Etihad would hold 24 percent stake, while Jet Chairman Naresh Goyal would have 51 percent and the remainder 25 percent would be with public shareholders.
SEBI has been of the view that it was up to the government to take a call on whether the 'control' was going into foreign hands and the regulator is only concerned about the takeover regulations and whether the deal requires an open offer for public shareholders.
The market regulator has apparently adopted a stand that either Jet and Etihad might need to make an open offer, or else they may have to alter the contours of the deal to ensure that the acquirer (Etihad) is not getting any 'control' and its powers remain in line with proposed 24 percent stake buy.
Without specifically referring to Jet-Etihad deal, SEBI Chairman had said earlier this month that any entity acquiring control of a listed Indian firm would need to make an open offer for public shareholders.
The open offer for minority shareholders would need to be made even if the 'control' has been acquired without crossing the threshold shareholding limit (25 percent), Sinha had said during a function in the national capital.
"I am not talking about any specific deal, but SEBI is very clear on such issues. If somebody has acquired stake in a company beyond a certain threshold then the acquirer has to make an open offer to others. That is the first position.
"The second position is that even if the acquirer has got less than the threshold but he has got the control over the company then also he has to make an open offer.
"So SEBI will be looking into any case where there is a suspicion or belief that control has been acquired. SEBI will apply its tests and take a decision accordingly," he had said at that time.
SEBI rules define 'control' as "the right to appoint majority of directors, or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner".