Capital markets regulator Sebi has said that Etihad Airways' purchase of a 24 percent stake in Jet Airways did not amount to a change in ownership and thereby ruled the Abu Dhabi-based carrier does not need to conduct an open offer for shares in the domestic carrier.
Speaking on the development, corporate lawyer HP Ranina said that Sebi has come to the conclusion that Etihad has not taken control over Jet Airways which would trigger the takeover code. This is why they have exempted it. He said the deal can go ahead now.
SP Tulsian said though the development may come as good news for Jet and Etihad, but is likely to disappoint the minority shareholders who were expecting an open offer.
He said the decision may not impact Jet's share prices too much. "Presently, the share has been ruling at a lower end only. So, maybe a mild correction of Rs 15-20 can be seen in the stock and the life will go as normal from here on," he said.
Sandeep Parekh, Founder - Finsec Law Advisors, thinks the decision sends a positive signal to a relatively large JV partners and foreign investors who want to invest in India.
Below is the transcript of HP Ranina, SP Tulsian & Sandeep Parekh interview with Elan Dutta and Kritika Saxena of CNBC-TV18.
Q: Sebi has exempted Etihad. It has said there has been no takeover code violation. The deal is likely to go through. Just wanted to understand the implications and how are you reading this?
Ranina: The way I am reading it is that Sebi has come to the conclusion that Etihad has not taken control over Jet Airways which would trigger the takeover code. This is why they have exempted it. In other words they feel that the takeover code does not come into operation now because of this deal. Therefore the question of they buying the shares in the market doesn't arise. This is how I read the Sebi order.
Q: So, no open offer for minority shareholders. Can we infer that now all the legal hurdles have been solved for Jet-Etihad deal?
Ranina: I hope so. I don't know about the issues pending before Competition Commission or any other authority. However as far as Sebi is concerned they are not concerned with any other regulatory issue. They are only concerned with the question whether the takeover code is triggered and they have now come to the conclusion that it is not triggered. Therefore there is no open offer to be made to the minority shareholders. Therefore they can go ahead with it now.
Elan: Finally good news for the Jet-Etihad deal. It's a complete go ahead now, at least from Sebi's quarters?
Tulsian: It is a good new for Jet Airways and Etihad but maybe minority shareholders or the public shareholders those who have been expecting an open offer will definitely get disappointed.
Elan: What do you expect as far as Jet Airways goes then in the near term? How do you expect the reaction to be?
Tulsian: If you see the Sebi decision, they have stuck to their earlier decision and the matter was referred by some other authorities to Sebi to look into it.
Sebi had reviewed and they did not find it appropriate to review their earlier decision. They have stuck to it that no open offer is required to be made by Etihad. So, now if Sebi has ordered that Etihad is not seen to be in control then that may be the legal position, but people will de facto will be taking that yes, going forward Jet will be jointly controlled or is been jointly controlled by Jet and Etihad. I don't think that any kind of effect will be seen there. Presently, the share has been ruling at a lower end only. So, maybe a mild correction of Rs 15-20 can be seen in the stock and the life will go as normal from here on.
Q: Could Sebi have taken a different stance? Could it have decided on something totally different if you look at the civil aviation rules?
Parekh: Sebi could have taken a different stand. If you don't look at it just from the takeover perspective, from a broader economic perspective this is a good development. It gives more certainty to largish but not very large joint venture partners who want to come into India or even private equity investors who want to invest in India. So, this will provide some comfort that they can purchase fair amount of shareholding. I think broadly it sends a positive signal to foreign investors who have been battered for the last several years for tax and other purposes.
Q: Is there a different definition of control that the CCI works with and a different definition of control altogether that Sebi works with. Has that been reconciled now?
Parekh: This order seems to indicate that two definition of control are different in fact. As you are aware Sebi's definition of control has undergone some level of change. There is one important ruling which held that negative control would not amount to control and then it went all the way up to the Supreme Court.
The SC set it aside saying it was not to be a precedent. So, right now we are kind of bit confused about whether negative control amounts to control. So, this decision helps in giving more certainty in that direction.
Q: Sebi has upheld that Etihad is not going to have control of Jet Airways for example even in the board structure it is Jet that is going to have a larger role to play etc. Speaking from a good corporate governance point of view all options of an open offer now completely ruled out? Where does this leave the minority investors?
Parekh: I would think so unless one of the minority shareholders goes and appeals against this order to either SAT or to the High Court. This not the end of the road for people who kind of disagree with what is stated in this order.
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