 "Jet-Etihad deal: FIPB clearing agreement not end of story")
After giving an in-principle approval to the deal, economic affairs secretary Arvind Mayaram, who is heading the FIPB, said it had been passed with “some conditions”. The board had deferred the deal last month, saying it was not able to determine who would be the real owners of Jet once the deal went through. The government feared that the control of the company was going into “foreign hands”.
Even if Jet and Etihad did revise the original shareholders’ agreement to comply with the norms, in which they maintained that ownership would remain with Jet, “questions on effective control and ownership still remains, which is the main reason why the FIPB had to refer it back to Sebi (Securities and Exchange Board of India). Once the definition of ownership and control gets notified, Jet has to come back with changes”, a senior official present in the FIPB meeting on Monday told Business Standard.
The official added the definition of effective control and ownership given by the civil aviation ministry under the proposal “surpasses” all other definitions such as those stipulated under the Companies Act and the department of industrial policy and promotion (DIPP).
While FIPB has approved the deal based on what was stated by Jet and Etihad in the revised agreement, question remains what will happen when the foreign direct investment (FDI) policy on the definition of control and ownership gets notified.
The DIPP, under the ministry of commerce and industry, is still awaiting the corporate affairs ministry’s view on this. Once it receives their comments, the FDI policy will be notified.
Dheeraj Mathur, executive director, PricewaterhouseCoopers, said: “The Jet-Etihad deal will act as a benchmark when the government notifies the FDI policy on definition of control. There could be some grandfathering clause when the future policy will be shaped up. As per principle of natural justice, there cannot be a retrospective policy on this.”
Sebi, it is learnt, seemed to have also raised questions on Jet’s promoter Naresh Goyal, who will own 51 per cent stake, having veto powers.
Commerce and Industry Minister Anand Sharma had earlier said the new definition of control will not be “exactly the same” with the definitions laid out by the Companies Act because this concerned foreign direct investment.
On the other hand, for the deal to go through, the government has to also approve BASA, which was announced in April and in which the government had given extra seats to Eithad. Opposition parties have alleged that BASA was chalked out in a manner to favour Etihad and something hampers government-owned Air India’s growth in the sector.
Amber Dubey, partner and head, aerospace and defence, at global consultancy KPMG, said: “As far as BASA is concerned, often extra seats are given in return of investments. This does not automatically translate into passengers and cash flows. Ultimately, it is the passenger who decides whether he flies via Abu Dhabi or Dubai or Qatar or directly to London via Air India.”
GO SLOW ON JET, SAYS SUBRAMANIAN SWAMY
Following are some of the points Janata Party President Subramanian Swamy has made in a letter to Prime Minister Manmohan Singh after the Foreign Investment Promotion Board approved the Jet-Etihad deal:
* Proposed operational arrangement between Jet Airways and Etihad Airways in conflict with the civil aviation regulation relating to ownership and effective control of an airline
* Cosmetic modifications made by Etihad and Jet as recently as on July 25 to manage a favourable decision from the Foreign Investment Promotion Board, and alarmingly do give “effective control” to Etihad. FIPB ill-advised to proceed on the basis of these modifications
* In the process of examining the ownership and effective control, government needs to first verify Indian ownership and control, supposedly in the hands of a non-resident Indian, Naresh Goyal. Eighty-four per cent held in the erstwhile OCB–Tail Winds, where ownership and funding has been questioned for many years without any real answers emerging
* Examine the ownership of Tail Winds registered in the Isle of Man, a tax haven, as to who the true hareholders and beneficial owners are