Tata Group set to pick 7.5% in SpiceJet

After an abortive bid to enter domestic aviation with Singapore Airlines almost a decade ago, Ratan Tata’s ambition to join the sector may finally become a reality, with his group set to take a 7.5 per cent stake in SpiceJet Ltd, the country’s sixth largest carrier. According to investment banking sources, the Tatas are likely to offer Rs 60-65 a share of SpiceJet, about 25 per cent more than the price at which the shares are traded on the Bombay Stock Exchange. Tatas will thus have to shell out about Rs 90 crore for buying 7.5 per cent in SpiceJet. The price puts the airline’s valuation at Rs 1,200 crore. The Tatas are likely to buy another 7.5 per cent in the company at a later date.

As and when that happens, it would trigger the takeover code for a mandatory offer to the public to acquire a minimum of 20 per cent. The maximum stake in SpiceJet is owned by Ajay Singh, a director on the company board, followed by the London-based Kansagra family. The Tata group has nursed the ambition to enter the sector for nearly five decades now. In 1948, former group chairman JRD Tata launched India’s first international airline—Air-India. But the company was nationalised in 1953, when the central government appointed JRD as chairman of Air-India and a director of domestic carrier Indian Airline—-the two positions he held for 25 years. The Tata group and Singapore Airlines had proposed to set up a domestic airline with an investment of $700 million in the late ‘90s.

But the government had then refused to grant permission to the JV on the grounds that foreign investment in domestic airlines was not allowed. A SpiceJet spokesperson confirmed that “the Tata group, through a financial arm, is going to pick up less then 10 per cent stake in SpiceJet”. However, he said the development should be seen as a “financial investment” and not as a “strategic investment”. SpiceJet launched its operations in February 2005 and has managed to corner a market share of about 8 per cent in less than two years. It posted a turnover of Rs 419.64 crore for the year-ended May 31, 2006. Its losses stood at Rs 47.29 crore.

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