Jet, Etihad may soon submit watered-down pact for Sebi nod

MUMBAI: Three days after India's Foreign Investment Promotion Board approved the Jet Airways-Etihad Airways airline joint venture, both the carriers will be submitting the final agreement to the government incorporating the conditions set by the government agencies.

Etihad's deal to purchase 24% stake in India's largest carrier by revenue for $379 million requires approval from the government. In the final agreement, the middle-east carrier will make significant rollbacks that would allay market regulator Sebi's apprehensions and secure its approval.

Sebi had earlier raised concerns regarding some of the clauses in the original agreement, which gave the Abu Dhabi carrier significant powers in the management of the Indian company even with a minority stake.

The original agreement said the appointment of CEO and directors should be approved by three-fourths of the total shareholders. Sebi struck down the condition by saying it can be done with a simple majority.

Similarly, Etihad wanted all agendas to be passed with a two-third majority on the board. However, Sebi said this could be done with an ordinary resolution as per the Companies Act.

Moreover, the capital market regulator said that the nominations committee will not have the exclusive power - as mentioned in the original agreement - to nominate independent board members, although it may recommend. "The new agreement will reflect all these changes," said a person familiar with the development. "The board supremacy should not be undermined."

The Jet-Etihad deal is the first foreign direct investment in the aviation sector after it was opened to foreign carriers last year. The proposed transaction also marks the government's efforts to attract foreign direct investment which declined 38% to $22 billion in 2012-13. Etihad has also agreed to reduce its seats on Jet's board to two from the earlier three. "This will also reflect proportionate representation of the respective stakeholders on the board of the company," said the first source.

The Jet board will have 12 members with four representing Goyal and six independent directors besides Etihad's nominees.

At any given point of time, it is expected that the majority of the board members wil be Indian nationals. Etihad, which owns stake in several airlines like Air Seychelles, Virgin Australia and Aer Lingus has also agreed to Goyal having the casting vote power on any matter. Earlier, neither the chairman nor the vice chairman had this power.

UAE's national carrier had also earlier wanted the senior management to be mandatorily sourced from it but now it has agreed otherwise. Jet and Etihad will also incorporate the conditions set by FIPB in the final agreement.

The FIPB, on Monday, cleared the deal with conditions that control of Jet will remain with Goyal and future changes in shareholders agreement needs its approval.