Promoters’ stake in low-cost carrier SpiceJet will rise to 58.5 percent if they decide to convert the 6.4 crore warrants issued recently, into equity at par.
Sun Group Chief Financial Officer told CNBC-TV18 in an interview that the warrant issue was aimed at arresting the erosion in the company’s networth.
Losses at SpiceJet have been mounting, as the company grapples with high fuel price and fierce competition. The company has reported a net loss of Rs 508 crore for the first half of this financial year, on the back of a Rs 191-crore loss for 2012-13. The company’s networth as on September 30, 2013 is negative Rs 603 crore.
Over the last year, SpiceJet shares have declined 57 percent, and those of rival Jet Airways have fallen 53 percent.
Last year too, the company’s promoters had infused funds through warrants, and in December 2013, raised their stake by 2.8 percentage points to over 53 percent by converting Rs 54 crore worth of warrants into shares.
Competition in Indian skies is expected to intensify as Air Asia and Tata SIA commence operations in the coming months. There are media reports that SpiceJet is in talks with strategic investors to sell a minority stake and raise equity capital.
However, Narayanan refused to comment on this aspect.
Also Read: SpiceJet to issue warrants to promoters for fund raising
Below is the edited transcript of SL Narayanan interview on CNBC-TV18
Q: If you could take us through the funding in SpiceJet; the way promoters are pumping money. Why are you doing that, what is the game plan and do you plan to take your stake further up from the current 53.5 percent?
A: The move is essentially aimed to strengthen the capital base of SpiceJet which as you know has been the current requirement of because of the difficult situation in the aviation business. So, with this round of funding the promoter group will take its holding to 58.6 percent.
Prior to disinvestment the total infusion in last two years was around Rs 400 crore. So, we are putting in another Rs 133 crore which will take the holding by another 5%.
Q: Just to take that point forward would there be any other promoter funding which we could expect in the near future, any more issuance of warrants?
A: No, this issue is essentially structured as a warrant which entitles the holders to exercise the option for an equivalent number of shares. As soon as the options get exercised, it will get converted to shares.
Q: When is the option getting exercised because this is almost 5 percent and will this 5 percent exercise continue every year?
A: I hope not, I hope the airlines turns around so spectacularly that they don’t need to form this anymore. At this time there are no plans to put in any further money. We have been doing appropriate funding to make sure that the show goes on.
Q: I know you won’t be able to talk on the numbers because we are pretty close to the earnings season, but qualitatively how was the quarter gone by because before that the numbers look really bad and there is some issue with the net worth as well?
A: September quarter is something I would like to forget pretty quickly, maybe two or three short steps to forget September. It was a prefect storm in many ways.
There was extreme discount in what is normally a lean season and overlaid on top was rapid depreciation of the currency. If we recall it has almost touched at Rs 69 during the quarter in mid-September which meant a huge impact on the rupee translation of cost that are incurred in dollars.
So, September is something I hope never reappears. December being much better quarter in terms of loads, in terms of realisation because when the loads go up, you go to subsequent buckets which are priced higher. So, as the cabin reaches the full capacity of 189 seats or 212 seats or 70-80 depending upon the type of aircraft. It is natural that December will always be better then September. So, this year is no different.
Q: We have to ask you about some reports which were doing the rounds with regards to SpiceJet this morning itself. We do understand reports indicating that you’ll might be looking to sell a minority stake as well as sign an interline agreement with a West Asian full-service carrier; could you comment on the same?
A: No, I don’t think I can comment anything on this. But again speaking just generally interline arrangements are something that are not ever done on an executive basis. So, we have just done one with TigerAir which is a very reputed name in South East Asia and which has a fairly good footprint in Southern India which is our key market. So, we can pool-in our resources, networks and do a reasonably good job of cross-sailing.
So, as an idea interline is something that we think makes a lot of sense because it gives us an extended distribution arm. So, we are not the first to looking at another interline or maybe two or three more interline arrangements.
Q: Could we hear on interline arrangements anytime soon, in maybe the next couple of weeks or quarters? Could you give us a timeframe as well as some more details on the same?
A: I am sorry, I really wish I could be a little bit more precise on this but at this time we are just conjecturing on possibilities. There is nothing that I can say with conviction.
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