Budget airline SpiceJet Ltd, which is looking to raise $100 million to fund plane acquisitions, has flown into turbulence.
Dubai private equity firm’s stake could rise to 30% from 13%
BANGALORE: Budget airline SpiceJet Ltd, which is looking to raise $100 million to fund plane acquisitions, has flown into turbulence.
Istithmar, the Dubai government’s private equity arm, which holds 13% stake in the carrier, was considering not converting its foreign currency convertible bonds (FCCBs) into equity, according to sources.
That would mean SpiceJet would need to shell out substantial money to repay Isitithmar’s debt, along with interest.
SpiceJet had raised $80 million from Istithmar and Goldman Sachs through an FCCB issue in December 2005, which carried a coupon rate of around 8%. Istithmar paid a huge premium at Rs 89.3 per SpiceJet share then.
SpiceJet used the money to make pre-delivery payment to Boeing Co for 20 aircraft it had ordered.
However, later when the budget airline entered into a sale and leaseback deal for the aircraft, the Seattle, US-based aerospace giant put the Rs 320 crore into an escrow account in a US bank.
“That money is still lying in the US bank. If Istithmar goes for a conversion of FCCBs, the bank deposit will go to SpiceJet. If Istithmar doesn’t, the deposit will be used to repay them,” said a source familiar with the situation.
The exit of Istithmar, thus, will hit the already cash-starved SpiceJet severely.
In January 2007, SpiceJet went for a second round of funding, which saw Istithmar invest $30 million at Rs 52 per share.
At the same time, the firm also renegotiated its FCCB conversion price to Rs 57 per SpiceJet share, meaning, at conversion, its stake would be much more.
The Tata Group, French bank BNP Paribas and Goldman Sachs also put money during the placement.
Now, said the source, Istithmar could wring the carrier’s hands to further bring down the conversion price of the FCCB, seeking around Rs 30 per share, since SpiceJet has few options.
The share closed at Rs 32.50 on the Bombay Stock Exchange on Friday.
“If they don’t get that price, they may prefer to encash the bond,” putting the carrier into a cash crunch, said the source.
A SpiceJet official confirmed the development, but explained the issue stoically:
“Isithmar is a strategic investor in our airline. They are not like your usual private equity, which looks only at returns. They want to be a part of the Indian airline industry. They will use opportunity to hold on to their stake and increase it (at lower price),” said the SpiceJet official, who did not wish to be named.
If Istithmar succeeds in lowering the share price to Rs 30 and opts for conversion then its stake in the company could go up to somewhere close to 30%.
Under the current government rule, a foreign company can own up to 49% in an Indian airline.
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