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The Foreign Investment Promotion Board (FIPB) has approved debt-ridden Jet Airways’ plans to raise $400 million (about Rs 2,000 crore) through sale of fresh shares to qualified foreign institutions, but the country’s largest airline by passenger numbers will still need the Union Cabinet’s clearance to go ahead.

   FIPB, the government arm that clears foreign investment proposals, approved Jet’s plan and will forward it to the finance minister soon, a government official said.

   Cabinet clearance is mandatory to issue fresh capital to foreign investors in the highly regulated sector with a 49% cap on foreign direct investment and a ban on selling stake to foreign airlines.

   Once the proposal gets the minister’s nod, it will be forwarded to the cabinet committee on economic affairs (CCEA).

   Jet is in dire need to induce fresh equity as it’s struggling to service its huge chunk of debt, estimated at around Rs15, 000 crore as of July.

   The move to raise Rs 2,000 crore, which has the backing of the department of industrial policy and promotion (DIPP) and the civil aviation ministry, is expected to get the Cabinet’s approval, said the official, requesting anonymity.

   The civil aviation ministry had referred the proposal to the directorate general of civil aviation (DGCA) and obtained the regulator’s green signal for the sale.
   The troubled airline is also planning to raise Rs 1,000 crore through sale of land as it looks to reduce the debt burden and push ahead with expansion plans, especially on international routes.

   The details of the stake sale will be finalised on the basis of market conditions at the time of placement, said a senior Jet executive who asked not to be named.

   According to industry analysts, the airline may float a GDR/ADR issue or revive plans for a rights issue once the first tranche of funds is raised. If these attempts fail, Jet may go in for another round of equity infusion through the QIP route, said an executive, requesting anonymity.

   Jet had informed FIPB that it will issue 7.92 crore shares to raise Rs 2,000 crore, going by the market conditions on September 11 when the application was filed. From the prevailing price of Rs 252 then, the Jet scrip has since moved up to over Rs 432.

Looking for FII participation:

IF JET raises $400-million FDI, the holding of Jet Airways chairman Naresh Goyal, the principal promoter of the company, will shrink significantly from the current 80%. Mr Goyal owns the airline through Tail Winds, an overseas corporate body (OCB) – a category that has since been abolished.

   The airline’s management expects that foreign institutional investors (FIIs) would participate in the QIP and they would be in a better position to pick up stake in the company, compared with domestic investors.

   The investment sentiment for airline stocks has been lukewarm since the domestic aviation industry is estimated to have lost Rs,10,000 crore last year due to high aviation turbine fuel prices, overcapacity and the slump in demand due to global financial meltdown.

   Therefore, Jet had informed FIPB that it might not be possible to raise funds from the domestic market.

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