Kingfisher FII cap to make room for investors

Last Updated: Thu, Dec 13, 2012 21:20 hrs

Kingfisher Airlines Ltd, which is in stake sale talks with Abu Dhabi's Etihad Airways and other investors, has capped foreign portfolio investment in the company at three per cent, carving space for a foreign investor to buy as much as 46 percent of the embattled carrier.

India allows foreign investment of up to 49 percent in local carriers. Foreign institutional investors currently hold 2.46 percent of Kingfisher, according to stock exchange data.

Foreign institutional investor interest in airline stocks has revived after the government amended rules allowing foreign airlines to invest in Indian carriers. Since last September, FII share holding in Kingfisher has fallen from 2.11 per cent to 0.34 (February) and 0.98 per cent (June) before climbing up to 2.46 per cent in September 2012.

According to analysts, change in the business environment and end-to-discount pricing and cut-throat competition are also responsible for increased investor interest. FII holding in Jet Airways and SpiceJet was 4.81 per cent and 2.86 per cent, respectively, in September.

Cash-strapped Kingfisher, which was once India's No. 2 airline by domestic market share but grounded its fleet early October, said earlier this week it was in talks with Etihad Airways and other investors about taking a stake.

The airline informed BSE that the decision to limit FII investment was taken "with a view to keeping the company's capital structure in readiness for transactions that may be identified in the future for the benefit of all stakeholders of the company," Kingfisher said in a statement on Thursday.

Kingfisher, controlled by liquor tycoon Vijay Mallya, has been trying for more than a year to find an investor, without success. It is saddled with $2.5 billion (around Rs 13,620 crore) in debt, according to one estimate.

A fresh cash infusion into the struggling carrier could come from a financial or strategic, Indian or non-resident investor, Kingfisher said on Thursday. Shares of the company closed 4.98 per cent higher at Rs 17.27 on Thursday, while the BSE benchmark index, Sensex, shed 0.65 per cent to close at 19,229.26.

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