Foreign investors closer to approval in India

Victoria
By Victoria December 6, 2011 13:13

Foreign investors closer to approval in India

The Indian Finance Ministry has backed a proposal by the Department of Industrial Policy and Promotion (DIPP) to allow foreign airlines to acquire up to 26 per cent stake in domestic carriers. An overall sector cap will remain at however at 49%. Ministers have ruled that the proposal should not conflict with the Sebi takeover code, which triggers an open offer for a company if another company acquires more than a 25% stake.

For example, if a foreign airline acquires a strategic stake of 26% as proposed by the DIPP, then it will have to make an open offer to buy a total of 51% stake in the target company but this is not possible if the overall foreign investment in aviation is capped at 49%.

The ministry is considering raising the sector cap or amending the Sebi code to raise the trigger point at where a takeover offer is made.

If approved, allowing more foreign investment in aviation will do much to help the regions troubled airlines. Aviation infrastructure in the country, which is not subject to a cap (although more than 74% investment in a project requires government approval), has benefited greatly from outside investment.

Meanwhile in the US, analysts are bullish on passenger demand throughout the holiday season despite increased airfares and fears of another recession. Industry capacity has been slashed however in the region, which has been exacerbated by American Airlines entering Chapter 11, putting further upward pressure on prices.

Shares in US carriers rose yesterday with the benchmark NYSE Arca Airline Index closing up by 2.5% as all 15 components showed positive gains. JetBlue shares increased the most by 6%, with shares in US Airways nearly matching that rise at 5.8%. United Continental rose 3%; Delta was up 2.4% while Southwest shares closed up with a 2.3% rise.

Victoria
By Victoria December 6, 2011 13:13
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