Sebi exempts Etihad from making open offer in Jet deal

Market regulator Securities and Exchange Board of India (Sebi) today said Etihad Airways' purchase of a 24-per cent stake in Jet Airways (India) Ltd did not amount to a change in ownership and thereby ruled the Abu Dhabi-based carrier does not need to conduct a tender offer for shares in the domestic carrier.

The ruling comes after the Sebi issued a show-cause notice to Etihad in February asking the Abu Dhabi airline on why it should not have to make a tender offer to Jet public shareholders as required under the takeover code.

Sebi today passed an order inter-alia stating that Etihad cannot be termed as a person acting in concert along with the existing promoters of Jet under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and it has not acquired control over Jet as per the takeover code.

Sebi said, in the light of available documents read with the proposed articles of association of Jet Airways (India) Limited and shareholder agreement dated 19 September 2013 as also the corporate governance code, the rights proposed to be acquired by Etihad do not, prima facie, appear to result in change in control and consequently, do not attract the provisions of Takeover Regulations, 2011.

Consequently, Etihad would not be deemed as person acting in concert (PAC) with the current promoter group of Jet in terms of Takeover Regulations, 2011.

''As regards commercial co-operation agreement (CCA), as stated by Sebi earlier, Sebi would be guided by the decision taken by the government or other regulatory agencies regarding change in management / control. In the event, such regulatory agencies decide that Etihad would be acquiring control over Jet, consequently, they would be deemed as PAC along with the current promoter group of Jet, notwithstanding the views expressed above'', it added.

Sebi said it has taken note of the position of the finance ministry and the observations of the Competition Commission on the agreements entered into between Jet and Etihad to establish joint control over Jet, more particularly over the assets and operations of Jet.

Sebi had issued a show-cause notice on 11 February 2014 to the two parties alleging possible acquisition of joint control over Jet by Etihad and other parties acting in concert in terms of Sebi Takeover Regulations (See: SEBI creates fresh turbulence in Jet-Etihad airline deal).

While clearing the deal, Sebi said, the agreement between Jet and Etihad was modified and made compliant with the existing rules to prevent an open offer as the control remains with Jet even after Etihad's stake acquisition.

Since the existing promoters of Jet hold 51 per cent of the shares and voting rights in Jet-Etihad cannot be termed as a person acting in concert along with the existing promoters of Jet and cannot be judged as an entity acquiring control over Jet, Sebi said.

''It never was Etihad's intention to acquire control in any manner over Jet. In fact, the shareholders agreement and the other transaction documents were amended accordingly and the concerned Regulatory Authorities were satisfied that 'effective control' was vested in Indian nationals before approving the FDI in Jet by Etihad,'' Sebi's order, signed by whole time member Rajeev Kumar Agarwal, read.

The regulator's approval clears the way for Jet Airways and Etihad Airways to appoint key personnel and carry on business as usual.

In October, Sebi approved Etihad's purchase of the 24-per cent stake in Jet Airways, but said the deal would not trigger a mandatory open offer and that Etihad would not be considered a promoter entity in Jet Airways.

Etihad Airways also bought a 50.1-per cent stake in Jet Privilege Pvt Ltd (JPPL), a frequent flyer programme of Jet Airways.

In February, CCI cleared this transaction, saying it would not have an adverse impact on competition and that the two airlines were already partners in their respective frequent flyer programmes.

Under the extant guidelines of the Government of India, foreign participation in airlines business is limited to 49 per cent.

However, in JPPL, Etihad will have direct equity of 50.1 per cent and indirect equity of 11.98 per cent (24 per cent of 49.9 per cent) taking the total equity of Etihad to 62.08 per cent.