The Rs.2,060-crore Jet Airways-Etihad deal has run into more regulatory problems with Etihad rejecting any perceived obligation to make an open offer for minority shareholders of Jet Airways. Etihad has confirmed to the Securities and Exchange Board of India (Sebi) that it has not made any violations by not making an open offer, even so, Sebi regulators are now seeking further clarity on the issue from other agencies including the Aviation Ministry, Competition Commission of India (CCI) and the finance ministry. The deal had to be restructured last year to address concerns raised by Sebi and the CCI, after which it was closed late in 2013. However, an observation made by the CCI since then has put the deal back under the spotlight. This trouble with Sebi stems from the CCI observations at the closing of the deal last year that Etihad was getting “significant rights” and “joint control” in the running of Jet Airways. Both Etihad and Jet Airways knew that these comments left the door open for Sebi to investigate the matter. As such both airlines petitioned the CCI to remove this observation, but this was rejected and Sebi issued a show clause notice to Etihad on why action should now not be taken against it for not making an open offer, as it was getting into a controlling position at Jet Airways by way of the 24% stake purchase. In its reply to Sebi, submitted earlier this month, Etihad has contended that the deal was closed after all necessary regulatory clearances and it was not obliged to make any open offer. Now to say that this is a bit of a joke is putting it mildly as Sebi had previously stated that an open offer might not be required if Etihad is classified as a ‘public shareholder´ after buying Jet’s 24% stake. This no doubt through lawyers for Etihad as it was in fact the case that Sebi had stated that it reserved the right to change its view at transfer of control in this deal if another agency raised concerns, which they did. Now the problems are now the same as they were at the outset of the deal – the transfer of control and management of Jet Airways. At the outset of airline FDI in India it was thought that any amount below 49% would ensure home control of airlines, but as all observers pointed out at the time, some Indian airlines are so very weak and so desperate for cash that a hand over of control must go hand in hand with any deal. Of course the view here has not changed: Etihad is paying a very high price for Jet and the long-term gain is by no means a clear cut certainty, in fact it looks more uncertain now than it did 12 months ago at the announcement of the deal, given an increase in future competition, economic woes and tightening regulatory environment.
Jet-Etihad deal gets more regulator flack – this time it could be serious
