| Jet-Etihad deal hits Sebi, DIPP roadblocks |
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New Delhi, 25 July Ahead of the Foreign Investment Promotion Board's ( FIPB's) meeting on Monday to discuss the ₹ 2,060- crore Jet- Etihad deal, the proposed agreement has run into rough weather. This time, the Department of Industrial Policy & Promotion (DIPP), as well as the Securities & Exchange Board of India ( Sebi) have raised concerns on effective control being given to the Abu Dhabi- based airline. Following earlier concerns, Jet and Etihad filed a revised shareholders' agreement ( SHA) with DIPP and FIPB. This, too, doesn't seem to have gone down well with DIPP, which has found the " tone and language" is " similar to what it had submitted earlier". Meanwhile, Sebi is understood to have written to the Department of Economic Affairs ( DEA) that the commercial cooperation agreement ( CCA) should not be entered into by the two airlines at this juncture. The Sebi view is that the operational control of India's largest private carrier, Jet Airways, is likely to get transferred to a foreign player after stake sale to Etihad Airways. Sebi's objection here is significant, as the deal might fall apart if the CCA is not struck. That's because the agreement is one of Etihad's conditions for making investments in the debt- ridden Jet Airways. The CCA prescribes that Etihad could source candidates for senior management positions after the acquisition of stake in Jet. The two airlines further plan to shift network and revenue management functions to Abu Dhabi and consolidate sales office, according to a general sales agreement, to support Jet's sales in the UAE. The CCA requires Jet to exit from existing code- share arrangements with third parties on routes where Etihad or its affiliates operate. It also says that Etihad will take the lead role in negotiating with suppliers. Sebi is of the view that these clauses give Etihad the upper hand in operational matters. Further, under the corporate- governance code, the nominations committee of Jet- Etihad has exclusive powers to recommend the appointment or removal of independent directors and the CEO. Sebi says the committee should not undermine the authority of the board. It adds the powers of the nominations committee should be removed and the supremacy of the board restored. According to sources, Sebi has said the current corporate- governance code, which holds that board resolutions can be passed with a three- fourths majority, is against the provisions of the Companies Act. Under the current arrangement, all major decisions will have to be approved by Etihad. Turn to Page 18 > REST OF THE NEWS 12 > >BJP leadership writes to PM against Jet- Etihad deal Concerns over effective control not addressed in the second revised shareholders' agreement, says DIPP; Sebi opposes commercial cooperation pact AN AIR POCKET? Sebi' s concerns ( as told to DEA) |Commercial pact should not be entered into, as it gives Etihad the upper hand in operational matters |Etihad, under the pact, gets rights to source candidates for senior management positions |The airlines plan to shift network and revenue management functions to Abu Dhabi and consolidate sales office/ general sales agreement to support Jet's sales in UAE |Lead role in negotiating with suppliers, according to pact, will be Etihad's by simple majority. Under current arrangement, resolutions are |The nominations committee should not have exclusive powers to recommend appointment or removal of all independent directors and the CEO. These powers are against the provisions of the Companies Act DIPP' s concerns on the revised shareholders' agreement |Effective control and ownership lie with Etihad, and not Jet |If Naresh Goyal's stake is included, the 49% FDI limit is breached |Under the FDI norms, rights for voting and nomination should stay with Jet Sebi's objection to the commercial pact is significant, as the agreement is one of Etihad's conditions for making investments in Jet |
| ick: Article continued from… Sebi, DIPP roadblocks |
| Now, Jet- Etihad deal faces roadblocks... |
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According to the current shareholders' agreement, Etihad will get three board positions, while Jet will have four. There will be seven independent directors on the board. In simple words, the proposed amendment means that vote of eight board members will be sufficient to pass a resolution. DIPP has, apparently, also put a question mark on how equity investments made by Naresh Goyal, a nonresident Indian, will be treated in the entire calculation of foreign investment in the deal. This is because, if Goyal's equity participation is summed up with Etihad's 24 per cent stake, the FDI limit of 49 per cent " will be easily breached". Goyal has a 66 per cent equity stake in the airline. The whole drama seems to be taking an interesting twist, with Commerce Minister Anand Sharma understood to be batting for the deal to go through. He is learnt to have directed DIPP to work out a mechanism on NRI investments under the extant policy, so that the investment proposal goes through smoothly. >FROM PAGE 1 |
| Policy change unlikely to bring instant $ inflows |
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NIVEDITAMOOKERJI New Delhi, 25 July Even as the government prepares to make changes in the multibrand retail policy to woo foreign investors, experts feel substantial changes in the segment are unlikely at this point. The Department of Industrial Policy and Promotion has prepared a Cabinet note to relax the foreign direct investment policy in the multi- brand retail segment, cleared last September amid much political opposition. Ironically, the policy, despite the political cost it has borne, is yet to fetch a single dollar, as not a single proposal has been received from companies. The proposed Cabinet note mentions making three concessions —relaxing the onemillion population criterion for cities to allow foreign investors into the multi- brand segment; 30 per cent mandatory sourcing from India may now include even medium- scale enterprises, with investment of up to $ 2 million, against $ 1 million earlier; and though 50 per cent of the investment must be into back- end operations, the condition is applicable only for the first tranche. If these changes are implemented, industry would certainly welcome the revisions. However, ahead of several state elections and the 2014 Lok Sabha polls, analysts feel foreign retailers are unlikely to take a chance. On condition of anonymity, a representative of aglobal chain asked what if the next government imposed additional conditions on foreign retailers, making it tough to conduct business? Also, what if they were not allowed to move out? "State- by- state approval for retail chains remains the biggest challenge," said Technopak Advisors founder and Chairman Arvind Singhal. Political uncertainty might also be a hurdle, he said. Experts say the changes being proposed in the multibrand policy may help major foreign supermarkets such as Walmart, Carrefour and Tesco, but not the entire retail sector. There may be some movement in the big foreign supermarket segment, as these chains can afford to invest $ 50 million into back- end operations in the first three years, of a total of $ 100 million. " But what about foreign electronics, clothing and pharmaceutical companies? These cannot, and they don't need to, invest $ 50 million in back- end," said Singhal. " Is the policy only for big foreign retailers, or for the sector as a whole?" he asked. If the changed policy is positive for big brands, does it mean the likes of Walmart, Carrefour and Tesco would start filing applications soon? Nobody wants to speculate on that. Going by the noise the industry has been making, including Walmart's latest statement it cannot source more than 20 per cent from India ( against the mandatory 30 per cent), investors would wait and watch before putting in big dollars. Mandatory sourcing from small- and medium- scale industries remains a significant stumbling block for foreign chains, besides political uncertainty and the economy being under stress. The government is yet to answer specifically to the question of what would happen when a small enterprise grows big over the years. Would foreign retail chains keep scouting for small and medium enterprises to source goods from, time and again? Not only that, industry has some more concerns on its list. These are: only companyowned and company- operated structures would be permitted in multi- brand retail; the front- end investment should be new, too; global sourcing must be distinct from the compulsory 30 per cent buying from small and medium enterprises; acash- and- carry company's sales to a group retail company must be restricted to 25 per cent of the total sales; and the fact that states would have the power to impose additional conditions. Experts say the changes being proposed in the multi- brand policy may help major foreign supermarkets such as Walmart, Carrefour and Tesco, but not the entire retail sector |
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