SEBI creates fresh turbulence in Jet-Etihad airline deal

In a new twist to the Jet-Etihad saga, the Securities and Exchange Board of India (SEBI) has served a notice on Abu Dhabi-based Etihad Airways for allegedly violating rules in acquiring a 24 per cent stake in Indian carrier Jet Airways.

Etihad will have to address the issues raised by the market regulator, failing which it will have to make an open offer to buy another 25 per cent from the public holding in Jet Airways.

The SEBI notice to Etihad was issued earlier this week, according to reports emerging today. It says that the company violated Provisions 2.1.e and 4 of its takeover norms, on change in control, as stated in an order by the Competition Commission of India (CCI).

Under SEBI's takeover code regulations, an open offer is triggered in multiple ways, including when an entity acquires a 25 per cent stake in a listed firm and/or if it acquires control over it. Commentators suggest the latter might have been the case, as Etihad is likely to control operations.

This action will further complicate matters for both airlines, already battling lawsuits related to the deal. Also the open offer, if necessitated, might clash with the foreign direct investment (FDI) norms as well as SEBI's.

The capital market regulator seem to be sticking to its earlier stand that the deal has resulted in a change in control at Jet Airways. The SEBI seeks to know why action should not be taken against the company that violated securities regulations.

If SEBI sticks to its stand, Etihad may have to make an open offer to acquire a total of 49 per cent in Jet Airways the current permissible limit that a foreign airline can hold in an Indian carrier.

The finding may create further regulatory hurdles as Indian aviation regulations stipule that management control has to be with Indian shareholders.

SEBI has asked Etihad to respond within 21 days, reports quoting source said.

SEBI action follows antitrust regulator Competition Commission of India's observation, made last year that the acquisition resulted in Etihad's "joint control over Jet, more particularly over the assets and operations of Jet".

SEBI had earlier tentatively cleared the deal subject to the deal being approved by the CCI as well.