When the chips are down, it is natural for one to become hysterical. Much the same is evident from the outburst of the peeved Jet Airways pilots. They have asked Prime Minister Narendra Modi to probe conspiracy between State Bank of India (SBI) and Etihad to sabotage Jet Airways and bring its flights down to a screeching halt. What they are, perhaps, hinting at is that SBI was roped in to engineer a share market collapse of Jet Airways shares so that Etihad could acquire cheap some 25 percent more stake from the hitherto 24 percent to become the dominant shareholder.
While this is purely speculative bordering on the hysterical, there is an element, albeit superficial, of truth in what they further allege — while Naresh Goyal, the promoter pledged his shares to line up a fresh line of credit of Rs 1,500 crore, which incidentally SBI is not ready to cough up, Etihad hasn’t extended a helping hand to Jet Airways in its hour of existential crisis.
It may be mentioned that as per the extant foreign direct investment (FDI) norms, FDI in aviation sector is permitted under the automatic route up to 49 percent by foreign airlines and possibly beyond this with government approval on case-to-case basis.
Foreign investment history bears ample testimony to their selfish stance. Foreign portfolio investors (FPI) are the first to flee the domestic stock market at the first hint of trouble. They not only trigger a panic selling in the domestic bourses but also a foreign exchange crisis with the demand for the greenback weakening the Indian rupee.
That is why discerning observers aver that opening up the Indian bourses to foreign investment was not exactly an unadulterated blessing. While it brings in foreign exchange no doubt, its quality is suspect — hot money that can flee India as quickly as it came.
Recently, the redoubtable PepsiCo has sued its contractual Gujarat farmers to pay up Rs 1 crore each for violation of its intellectual property rights (IPR) when all that they have done is use the seeds for their own crops. The US multinationals zealously guard their property rights.
Cadbury India went private a decade ago by delisting its shares that were the darling of Indian investors after having dug itself in with the capital supplied by them on initial public offering (IPO) in a manner of fair weather friend — kick off the ladder after climbing.
Honda decoupling itself from Hero is very well recorded. TVS also learnt bitter lessons from its collaboration with the US consumer durable major Whirlpool when its washing machine joint venture was called off soon after its launch. The refrain is foreign collaborators kick off the Indian partners as soon as they find their bearings in India.
The point is Etihad is here to lubricate its international operations emanating from its hub Abu Dhabi. It finds Jet Airways useful to ferry Indian passengers to Abu Dhabi for onward journey to the American and European destinations just as Emirates does from its hub Dubai. In the event, the Jet Airways pilots cannot expect Etihad’s heart to bleed for them.
In any case, pledging dud shares does not bring in dollops of cash. It is significant to note that SBI is hemming and hawing about further loans on shares pledged by Goyal precisely for this reason — it finds no security in them because the intrinsic value of Jet Airways shares is in the negative though the market price is positive thanks to the quirks of the share market. It wants solid guarantees and collaterals for further loans. Once smitten twice shy. When SBI perceived as savior of anyone in financial trouble can gird its loins, Etihad can be expected to be more circumspect.
Etihad is playing a waiting game. It covets majority stakes of Jet Airways but is not overly zealous to jump in immediately. It wants the market price of Jet Airways shares to plummet before stepping in to up its stakes to 50.1 percent from the present 24 percent.
(The writer is a senior columnist and tweets @smurlidharan)
Your guide to the latest election news, analysis, commentary, live updates and schedule for Lok Sabha Elections 2019 on firstpost.com/elections. Follow us on Twitter and Instagram or like our Facebook page for updates from all 543 constituencies for the upcoming general elections.
Updated Date: May 02, 2019 20:19:34 IST