India's watchdog raises concerns over Etihad-Jet deal

Sebi’s concerns over foreign control could block the $379m deal for 24% stake

Etihad Airway’s bid to purchase a 24 percent stake in Jet Airways could be blocked after India’s capital markets watchdog raised concerns the UAE national carrier would have the right to gain control of the company.

The Securities Exchange Board of India (Sebi) has written to the Foreign Investment Promotion Board (FIPB) warning that control of India’s largest carrier could pass into foreign hands because of the nature of the Etihad-Jet deal, worth $379m, The Economic Times reported.

The airlines have until July 31 to win regulatory approval but are at risk of missing the deadline due to political concerns and scrutiny by Indian market regulators.

Sebi's views are expected to have significant influence on the decision.

The deal would be the largest foreign investment in India’s aviation industry after the sector was opened up to foreign carriers last year and would provide Jet with cash to help pay off debts.

If it is found that Etihad would have a controlling stake in Jet, the Abu Dhabi-based airline could be asked to make an open offer. However, such a move could also defy airline legislation that requires control to remain in Indian hands, the newspaper said.

The regulator also has told the airlines the right to appoint board members should be proportionate to shareholding and that Etihad should not enjoy powers such as the right to appoint a vice-chairman and automatic representation on the audit committee, according to people familiar with Sebi's thinking on the matter.

"Etihad can't insist that certain decisions be taken only with their consent," a person familiar with the discussions told The Economic Times.

"During the normal course of business, if Jet requests for Etihad's representative on any committee to share its expertise, it is fine. But they can't have it as a right."

India’s foreign direct investment policy states an airline permit can be granted only to a company that is registered and has its principal place of business within India. The chairman and at least two-thirds of the directors also must be Indian citizens and substantial ownership and control must be with Indians.

The two airlines are likely to rework their agreement after receiving Sebi's feedback, the sources said.

In a statement on Wednesday, an Etihad spokesperson said the airlines were still aiming for the July 31 deadline.

"Both parties are working towards achieving the regulatory approvals before the long-stop date ... stipulated in the agreement. We are not in a position to comment further at this time," the statement said.

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