100% FDI in airlines arrives in India while Gol aid investors

Dino D'Amore
By Dino D'Amore June 21, 2016 10:54

100% FDI in airlines arrives in India while Gol aid investors

The Indian government has made good its promises to open-up the economy as it announces radical changes in India’s foreign direct investment policy, in the process opening up the airline sector to 100% ownership, the changes also relax the rules for defence and puts most sectors on the automatic approval list.

“India is now the most open economy in the world for foreign direct investment,” Prime Minister Narendra Modi said yesterday. “Now most of the sectors would be under automatic approval route, except a small negative list.”

The government has allowed 100% FDI in airlines from 49%. Some 49% ownership will now be allowed in airlines under the automatic route with any investment above this falling under the government permission list. However, the 49% limit on holdings by foreign airlines will continue. In addition the FDI limit for brownfield airports has been raised to 100% from 74%, opening up the possibility of overseas acquisitions of existing facilities for development.

It is a shame that airlines are still barred from purchasing Indian airlines above the 49% limit and this will preclude what would have been a bonanza period of Indian airline expansion and development. It remains to be seen how much non-airline investment interest there will be in the short term for Indian airlines.

India is not alone this week, Brazil is also updating its FDI rules and this is welcome news for Brazilian airline Gol Linhas Aereas Inteligentes with suitors waiting in the wings. As it waits though for further investment from airlines, it is still having great difficulty restructuring its debt. Yesterday Gol moved to sweeten a debt restructuring offer, extending the deadline to July 1 and reducing the proposed discount on its May 3 offer by a huge 84% for notes maturing in 2020, 2022 and 2023 and by 79% for its perpetual bonds. The airline also offered bonus payments based on the company’s performance and any possible takeover made before 2018.

Edmar Lopes, CFO, said the new offer is Gol’s final, non-negotiable proposal, aimed at resolving concerns expressed by creditors recently and kick-starting stronger participation from bondholders.

The reality is that Gol was in trouble on this one. The airline has repeatedly extended the offer this month, but interest was lackluster with just $135 million of bonds in the deal aimed at restructuring $780 million of outstanding debt, tendered as of Friday last week.

Dino D'Amore
By Dino D'Amore June 21, 2016 10:54