SpiceJet, ADAG fly apart on price differences

After weeks of hectic negotiations, budget airline SpiceJet’s talks with Anil Dhirubhai Ambani Group (ADAG) for sale of a majority stake is learnt to have fallen though on price differences.

According to sources, ADAG was not willing to pay more than Rs 40-45 per share, while SpiceJet wanted Rs 60-70 per share.
“ADAG’s price is lower than the market price (closing price of Rs 58.90 per share on Friday) because of Rs 200 crore tax liability on the company, which is currently under dispute,” said a source, asking not to be named.

Media baron Kalanithi Maran, who is also in the fray to pick up 51% stake in the airline, had backed out of talks in the past for the same reason, he said.    

The price offered initially by him was Rs 39 per share, which is at a discount of around 31% to the current stock market price. This would value the company at Rs 950 crore.

Maran, the owner of Chennai-based Sun Network, is now said to be ready to shell out up to Rs 60-63 per share. It is not clear whether this price quoted by Maran some time back had factored in the tax liability.

Another company that has shown interest in the no-frill airline, which will begin its international operations in June this year, is Religare Voyages Ltd (RVL).

According to sources, the Malvinder Singh-owned air charter and travel business company has offered a price of Rs 70 per share. Again, it is not known if this price has factored in the tax liability of SpiceJet.

The New Delhi-based budget airline is scouting for investors to expand its operations and has opened talks with the three parties to sell majority stake in the company. Currently, it is negotiating with all of them.

ADAG, which wants to foray into commercial aviation business, has said it would be exploring both organic and inorganic routes for the same.

And so, if its talk with Spiecjet fails, it could even consider starting its own airline.

However, sources said if ADAG is able to iron out difference on prices with the budget airline, then a deal could be announced as early as in a fortnight.

“(Currently) there are differences on the valuation. If that is over, a deal may be announced in a fortnight,” said an investment banker, requesting anonymity.

Sources said, with the valuation of the airline improving in the last few months, the promoters of SpiceJet were looking to exit.
Billionaire investor Wilbur Ross, who has invested through private equity firm WL Ross buying foreign currency convertible bonds (FCCBs) in the company, is ready to wait till the FCCBs come up for equity conversion in December this year. Sources said Ross’ private equity firm could convert the FCCBs into shares at a price of Rs 35 per share by November, which will give it around 30% stake.

The second option for it would be to redeem FCCBs at a premium of 40%, which could cost the airline around $95 million (around Rs 450 crore).

London-based Bhupendra Kansagra and family is the promoter of the budget airline with a 13% stake. SpiceJet director Ajay Singh holds 5%.

Sources said; “wooing other shareholders, at this point, may be a challenge (for SpiceJet).”