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MUMBAI—US billionaire investor Wilbur Ross, who made his
fortune taking over bankrupt steel, coal and textile
companies, will invest 3.45 billion rupees ($80 million)
in SpiceJet Ltd., his first investment in an Indian
airline.
WL Ross
& Co. will make the investment and Ross will join
SpiceJet’s board, according to a statement by India’s
second-largest budget airline. Ross will buy
foreign-currency convertible bonds held by Istithmar
PJSC and Goldman Sachs Group Inc., Kishore Gupta, a
director of the New Delhi-based airline, said in a phone
interview.
SpiceJet’s shares have declined 57 percent this year as
record fuel prices drain funds needed to pay for new
Boeing Co. planes the airline has ordered. Purchasing a
stake now may enable Ross to earn a profit as travel
demand rises in the world’s second-fastest-growing major
aviation market and mergers reduce competition.
“This
investment reflects the fact that there is still belief
in the long-term potential of Indian aviation,” said
Binit Somaia, a director for the Indian sub-continent at
the Sydney-based Centre for Asia-Pacific Aviation.
“There is interest from investors when assets are
available at good valuations.”
SpiceJet
surged as much as 16 percent after the deal was
announced Tuesday. It changed hands at 29.55 rupees, or
5.7 percent higher than Monday’s close, at 11:55 a.m. in
Mumbai.
Combined
losses for Indian carriers may double to $1.5 billion
this year because of rising fuel prices, according to
the Centre for Aviation, an industry consultant. The
losses will lead to mergers, reducing competition and
boosting fares in the long term, it had earlier
predicted.
India is
set to become the fastest-growing air travel market in
the next two decades as more people shun trains and
instead opt for discount airlines, Airbus SAS, the
world’s largest planemaker forecast in 2006. India’s air
travel will grow at an average annual 7.7 percent pace
until 2025 compared with China’s 7.2 percent and the
global average of 4.8 percent, it had said.
We
believe in the long-term validity of the low-cost
airline model in India, and that fuel prices eventually
will stabilize,” Ross said in the statement.
The
transaction is Ross’s second investment in India. In
February 2007, Ross acquired OCM India Ltd. a worsted
suiting maker, for about $37 million.
Ross
will buy foreign-currency convertible bonds, or FCCBs,
owned by Dubai-based Istithmar and Goldman Sachs, Gupta
said. The purchase will enable SpiceJet to use funds
from the account it couldn’t utilize until now, he said.
“Wilbur
Ross will decide later on conversion,” Gupta said.
The
airline had raised $80 million in 2005 by selling the
convertible bonds. Last year it sold shares to India’s
Tata Group and BNP Paribas raising $100 million.
SpiceJet
has more than 20 single-aisle planes on order with
Boeing Co. The airline, which began flights in May 2005,
has a fleet of 15 planes.
India’s
UB Group, controlled by billionaire Vijay Mallya, was
competing to buy a stake in SpiceJet, the Economic Times
reported July 5. UB Group runs the Kingfisher Airlines
Ltd. and Deccan Aviation Ltd.
SpiceJet shifted focus to billionaire Ross as the price
offered by Kingfisher was too low, the daily reported
July 8. |
