Proxy advisory asks Jet shareholders to oppose JPPL deal

MUMBAI: Market experts and proxy advisors have asked shareholders to oppose the move by Jet Airways to sell its frequent flyer programme business to its subsidiary Jet Privilege Private ( JPPL) for Rs 695.21 crore.

Experts say shareholders are being kept in the dark, as Jet has not disclosed whether independent fairness opinion has been obtained on the valuation of the business being sold, nor has it disclosed as to how it has arrived at the valuation.

The last date for receiving postal ballots from shareholders is March 14 and the results will be announced by March 22. Interestingly, the fair trade watchdog Competition Commission of India has approved Etihad's 50.1 per cent stake purchase in JPPL.

“We find that the entire transaction is opaque and the Company has not provided the requisite information to the shareholders,” said J N Gupta, former executive director at Sebi. Jupta runs a proxy advisory firm SES, which has put out a report asking shareholders to oppose the deal.

“SES is raising this issue as the extant guidelines of Government of India limits foreign participation to 49 per cent and in JPPL, Etihad will have direct Equity of 50.1 per cent and indirect equity of 11.98 per cent (24 per cent of 49.9 per cent) taking the total equity of Etihad at 62.08 per cent. If any of the business being transferred to JPPL under frequent flyer program has any element of airline business where foreign equity is restricted to 49 per cent, this may result in violation of the law.”

Jet did not respond to an email query till the time of going to press. Advisors say this could be like a backdoor deal for Etihad sans open offer.

“Concern for minority shareholders is that this deal could be sort of a back door deal for Etihad and the company may not have to make any open offer for it too,” said Shriram Subramanian, Founder and MD, InGovern Research. “However, it is good that some money would come into Jet that would help keep the airline afloat.”

There is a concern that the operations under Jet being transferred to JPPL may not be simply related to operating a frequent flyer programme. The activities proposed to be transferred are integral to operations of an airline (such as Marketing Services Agreement, IP Assignment and Retained IP License etc). SES is of the opinion that a careful legal examination is needed to determine whether any of the activity proposed to be transferred are part of the Airline’s integral business.