Now, a Sebi speed breaker to Jet Airways, Etihad

May 15, 2013



The Securities and Exchange Board of India (Sebi) is likely to ask Etihad to make an open offer for Jet Airways, which is not going down well with the foreign airline as it is not comfortable with the disclosures required when making such a move, reported CNBC TV18.



The move comes ahead of Jet's shareholder meeting on 24 May to seek approval for preferential issue of shares to Etihad and amendments to its articles of association (AoA). As per the agreement between the companies, Etihad will pick up 24 percent stake in Jet Airways for Rs 2058 crore.



Though, as per Sebi norms, an open offer is mandatory for the acquirer if it buys 25 percent or more in a target company, the regulator has said that this is not the only criteria.



As per the agreement between the companies, Etihad will pick up 24 percent stake in Jet Airways for Rs 2058 crore. Debarka Banik/Flickr

The acquirer will have to make an open offer if the stake buy results in change of management control directly or indirectly.



According to an earlier Economic Times report, a top Sebi official had said that Etihad is not a passive investor in Jet, as the foreign company has control over the appointment of top executives of Jet.



The report also said Sebi may ask Jet Airways to tweak the agreement so that the companies can avoid open offer. The companies were holding talks with the regulator regarding this.



However, according to the CNBC-TV18 report, Etihad is concerned about mandatory disclosures it will have to make if it is to make an open offer to Jet.



As per the Sebi takeover regulation, Etihad will have to disclose financial details and funding details of the company. However, Abu Dhabi government is reluctant to disclose these, the report said.



Sebi has also raised objections to amendments of the AoA of Jet. According to a Business Standard report today, the new AoA will give special privileges to Etihad as it will have control over appointment of auditors and vice-chairman and removal of directors. The foreign airline can also access the company's records.



Further, as per Article 44 of the new AoA, for a general body meeting to take place the quorum requirement will be the personal presence of five members, in which at least one representative each of the promoter and investor is there.



According to a report in the Economic Times today, proxy advisory firm Stakeholders Empowerment Service has advised shareholders to vote against these proposals as the amendment is giving Etihad, which is a public shareholder too, a special status.



"SES believes that each shareholder should get similar rights irrespective of its shareholding in the company," the ET report quoted SES as saying in a note.



According to SES, Article 81 of the new AoA, which allows Jet to engage two joint auditors, is also unfair as this will "usurp the role of audit committee and send negative signals to the market about the autonomy of the audit committee and the intentions of the company with reference to governance".


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