SpiceJet accepts Wilbur Ross's offer

SpiceJet has settled persistent speculation about its future course of action by accepting American billionaire Wilbur Ross's offer to invest Rs345 crore in the ailing airline. SpiceJet is currently capitalized at Rs672 crore.

Wilbur Ross, in making the investment, said he believes in the long-term validity of the low-cost airline model in India. Also referred to as the ''master of distress,'' Ross has a penchant for investing in distressed assets and waiting out the period when the company turns around before encashing.

As for SpiceJet, WL Ross will have equity stake, post-FCCB (foreign currency convertible bond) conversion in September 2010, according to market sources. They also said that Ross will acquire FCCBs held by Istithmar and Goldman Sachs, which are due for conversion in September 2010.

WL Ross's FCCB buy will free nearly $80 million from SpiceJet's bond account, sources said. Ross will use the bond account to the extent that it buys FCCBs from investors. However, SpiceJet couldn't use FCCB proceeds as these were securitised, sources claimed.

Earlier, Vijay Mallya, founder, Kingfisher Airlines had said that his company's takeover bid for SpiceJet had been rejected, reports CNBC-TV18. SpiceJet had countered Mallya's offer by demanding a price that he was not prepared to meet. SpiceJet needed cash and was looking into seeking alternative investment such as bonds. Mallya said, ''"I did discuss with the management of SpiceJet; I won't deny that, but I like to do good deals and I won't do expensive deals. They have aspirations which I cannot meet. I made an offer which I considered good for Kingfisher."

Ajay Singh, director, SpiceJet said that the structure of the deal will be decided when the final deal is announced. He expects no requirements of an open offer as per the structure of the deal.

WL Ross will own less than 15% stake in the company, Singh clarified.

Spicejet has accepted an in-principle offer to invest $80 million through the WL Ross offer, he said.

CNBC-TV18 shares with domain-b its exclusive interview with Ajay Singh:
 
Could you tell us how much stake WL Ross will pick up for Rs 345 crore?
It's an offer that Wilber Ross has made yesterday which the board of SpiceJet has accepted. In terms of the structure of the deal; the deal is still subject to final documentation which we expect will take about weeks and the structure; we will decide at that point after the final deal is signed - we will share the structure with you. At this time we are not commenting on the structure.     

 There will surely be an open offer because your current marketcap is Rs670 crore and they are pumping in more than half of that?
Under the structure we expect that there will be no requirement of an open offer. But we will discuss the structure once the final documentation is done. 

 Anything more than 15% will trigger an open offer…
We do not believe that there will be a requirement of an open offer.

Could you explain that?
 As I said we are not disclosing the structure at this point. Once the deal is finally signed and all approvals that we need to take are taken at that point we will share the structure.

We conclude that WL Ross will then own less than 15% of SpiceJet?
Yes clearly; if they own more than 15% of SpiceJet, there would be an open offer.

There are couple of large stakeholders as well at this point in SpiceJet including Tata Group. Are all the other large stakeholders on the same page? Will they be tendering their stake in order allow WL Ross to pick up whatever the indicated stake might be?
At this time all the large stakeholders of SpiceJet intend to remain in SpiceJet. We have not heard anything to the contrary from any large stakeholder. So all the speculative stories in terms of large investors exiting; we do not think there is much credence to them.

You are saying that the Tata Group and Istithmar will continue to hold the stake that they do right now in SpiceJet?
That's right.

What's the current foreign holding right now in SpiceJet?
There is significant headroom. As one would know that any foreign holding acquired through the secondary market is not counted towards the Foreign Direct Investment (FDI) cap, the government has imposed and I feel that there is significant headroom.

Without disclosing the exact structure can we infer that some of the money that WL Ross is putting in would be in the form of debt and not equity then as well?
As I said I do not want to comment at all on the structure.    
 
You are leaving your shareholders very confused because on current share…
From shareholders perspective I think it's a positive development that a large investment should be made in the company; it's a great vote of confidence in the SpiceJet model as well in the medium to long-term prospects of both SpiceJet and the Indian aviation sector. So we think it's a significant move forward for SpiceJet and will be greatly to the benefit of our existing shareholders. 
 
By doing the math, your shareholders would conclude that an open offer has to come but you are telling them it won't come. So don't you think you owe it to your investors to tell them why the open offer won't come?
We certainly will be; once the deal is done and it's concluded and all the documentation is done, we certainly will be informing our shareholders.