FIIs may be out of aviation FDI cap

NEW DELHI: In a move that paves the way for greater foreign investment in domestic airline companies, RBI has said foreign institutional investors (FIIs) can pick up stake in these airlines beyond the sectoral FDI cap of 49% through secondary market purchases. The apex bank’s view is that the sectoral cap of 49% is not stipulated as a composite limit. While FII investment is distinct from FDI in the foreign investment policy, secondary market purchase was a grey area that has now become clear.

RBI is of the opinion that investment through GDRs should be within the overall FDI limit. Secondary market purchases by NRIs and erstwhile overseas corporate bodies (OCBs) will also be within the 49% FDI limit. Such investments will be on a par with secondary market purchases by foreign banks, companies and nationals.

Following the RBI clarification, FIIs will be in a position to pick up shares of listed companies like Jet Airways, SpiceJet and Air Deccan from the secondary market without having to keep an eye on the 49% FDI limit all the time. The apex bank’s clarification was in response to a query from SpiceJet, which has recently made a preferential placement of 7.2 crore equity shares to raise more than Rs 60 crore.

The query from SpiceJet was moved from the civil aviation ministry to the Department of Industrial Policy & Promotion (DIPP) before landing up at RBI. After a series of consultations, the apex bank clarified that secondary market purchases by FIIs will have to be within the 49% FDI cap.

“FDI through secondary market purchases is generally accounted towards the applicable sectoral cap. As per observations of RBI, FII investment is not to be taken into account while calculating FDI in a domestic airline company,” says a government document conveying the apex bank’s clarification.