Etihad loosens grip on Jet; halves board membership to two

Jet Airways and its Abu Dhabi-based shareholder Etihad Airlines have amended the shareholding agreement and halved Etihad's representation on Jet's board to two, giving the Indian promoters 'effective control' of the carrier.

The reworked shareholding agreement has been forwarded to the finance ministry ahead of the FIPB meeting due on 29 July.

The reworked shareholding agreement limits the number of directors representing Etihad on the 10-member Jet Airways' board to two against of the earlier proposed four, sources said.

Etihad's shareholding in Jet Airways will remain 24 per cent, while key promoter Naresh Goyal will hold 51 per cent and others, including institutions will hold the remaining 25 per cent.

The review of the shareholding agreement follows objections by market regulator SEBI and the Foreign Investment Promotion board (FIPB) that Jet parted with more than what was due in the Rs2,058-crore deal.

Also, the Securities and Exchange Board of India had invoked the open offer clause as the deal effectively shifted management control of Jet Airways to Ethihad, within the 24-per cent share transfer.

While the trigger for open offer is 25 per cent stake sale, SEBI noted that when effective control changes hands, the trigger need not be 25 per cent.

FIPB, at its meeting on 13 June, had deferred a decision on the Jet-Etihad deal in the absence of any clarity on the ownership structure and management control of Jet Airways.

There are more complexities in the deal than seems from the outside. Critics point out that Etihad has swallowed more than the 24 per cent stake through extraneous arrangements and that the deal has been structured in a way to skip an open offer to the Indian public from Etihad.

The revenue department is also looking into any possible tax avoidance in the deal by concealing the identity of beneficial owners.

While the FIPB is scheduled to meet on Monday, it is not known whether the parties have clarified on all issues raised by the regulators.