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Is SpiceJet Likely To Escape Open Offer?

Published on Mon, Jan 19,2015 | 13:30, Updated at Mon, Jan 19 at 13:40Source : CNBC-TV18 |   Watch Video :

Ajay Singh, the potential new owner of Spice Jet has been very ambivalent about doing an open offer to SpiceJet's shareholders after assuming control of the airline. That could be because there is a window of exemption available that Singh maybe hopeful of using. CNBC-TV18’s Menaka Doshi reports.

As of now the management has kept its cards very close to its chest and its lawyers are not speaking either on this deal as of now. However if one were to go back and look through the variety of exemptions that are available under the takeover code, there are couple of things that would interest the viewers as well as those who are invested in SpiceJet.

As you have already heard Ajay Singh has been fairly ambivalent about whether there will be need for an open offer or not. In fact there is very little information out there on what the structure will be when ownership passes from the Maran's to Ajay Singh and how they intend to do that, what the series of transactions would be.

The only thing that is evident in their press release or their release to the exchanges that they have termed this as a scheme of reconstruction and revival for the takeover of ownership, management and control of SpiceJet Limited.

The takeover code does have a certain set of general exemptions. These exemptions are available to all such deals that meet the conditions laid down. These exemptions are available to certain schemes of arrangement and they are available on the basis of certain conditions that these schemes meet.

So, certain kinds of schemes of arrangement subject to certain conditions can be exempt from having to make an open offer of any sort and the takeover code says that these exemptions can be availed pursuant to an order of a court or a competent authority under any law or regulation Indian or foreign. That is the competent authority has to be a competent authority under any law or regulation Indian or foreign.

That means the exemption is available in two routes- you are a scheme and you go through the court process and then you can go to SEBI and say I qualify to avail of this exemption and SEBI has to agree and you can be a scheme, and you don’t necessarily need to go through the court rule. You could need only just an order from a competent authority.

It is interesting that Ajay Singh in his conversation with the media has constantly been referring to a competent authority which is the Ministry of Civil Aviation.

This throws up a couple of interesting questions -are they likely to avail of this specific exemption that is available for certain kinds of schemes, subject to certain conditions? And if they are going to avail of this exemption will they go through the court route, which is that the court will pass an order on the scheme and all the other conditions incumbent to any court ordered scheme or will they just seek the Ministry of Civil Aviation’s nod? And use that as a nod from a competent authority and go to SEBI and say, a competent authority has given us a nod for such kind of a scheme and therefore this scheme can now qualify for this general exemption.

What they intend to do will become more clear in the days to come because as yet, we have very little detail on this structure but I did want to point out that there is a window of exemption available to Ajay Singh, whereby he does not have to spend additional money in an open offer.

However, this is not necessarily fully bad news for shareholders because if an acquirer of an airline which is already in considerable trouble had to spend additional money buying shares from shareholders as opposed to pumping that money into the airline it would compromise the amount of money you will be able to pump into the airline because money is not endless or unlimited so to speak. So, maybe shareholders can look at this positively and say this gives Ajay Singh the opportunity to put more money into the airline as opposed to buying shares from us and therefore if he seeks this kind of open offer exemption it may not be a bad thing.

That is just one way of looking at it. The other way of looking at it is this is a deal that is going to entail a transfer of ownership and control but there will be no open offer. But this is the window of opportunity.

It is not unusual for schemes to get an exemption; that has happened in the past. What will be unusual in this case is that this is not a scheme that goes through the court process. If it is only a scheme that is approved by a competent authority i.e. Ministry of Civil Aviation and based on that approval this scheme then avails of the general exemption, that will be the novelty factor in this situation.

However, all this is with a caveat that we don’t know because the management won’t give us details.


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