Shares of Jet Airways surged 16 per cent to close at Rs 505.7 on Friday on speculation that Etihad Airways might buy 24 per cent in the company.
Market sources said Jet might issue fresh shares to the Abu Dhabi-based carrier at Rs 800 apiece, which will help the Indian airline raise Rs 1,700 crore and cut debt.
Such a deal would value the Naresh Goyal-controlled airline at Rs 7,150 crore and indirectly bring down promoters' shareholding from 80 per cent to 65 per cent on equity dilution, said analysts. Jet's market capitalisation on Friday was Rs 4,366 crore. If the deal works, Etihad might secure a seat on Jet board, sources said.
A Jet spokesperson said: "We are unable to comment on market speculation." Etihad did not respond to an email questionnaire.
Jet shares have surged 36 per cent in the past 10 days. According to one theory doing the rounds in the market, the company's promoters are looking to sell five per cent stake to cut their holdings to 75 per cent, to comply with Sebi's minimum public shareholding norms.
The regulator has mandated listed companies to ensure public shareholders hold at least 25 per cent. Market sources said a group of operators are spreading rumours to push up the stock.
On the sidelines of the company's AGM in Mumbai in August, Jet Airways Chairman Goyal had said, "We will be controlling. If the sentiment and overall situation improves, I will have an open mind to dilute, but have control over the company."
The comment was made before the government raised the foreign direct investment (FDI) limit in the aviation sector to 49 per cent in mid-September.
At that time, Goyal had said: "Today, I do not need (FDI). Tomorrow, I may need. There is nothing permanent in business."
Etihad Airways, which has lapped up stakes in Air Berlin and Virgin Australia, will look to extend its geographical reach to India and other Asian markets, a top official had told Reuters in October.
If Jet raises Rs 1,700 crore through a fresh share sale, it would help the company bring down its debt, which is at around Rs 12,000 crore.
"Such a deal has can help build a lot of synergies including expansion of the company's business into the Middle East," said an analyst with a domestic broking firm, who tracks the stock. "The company has resorted to asset sales in the last few months to reduce debt," he said.
According to a report by brokerage firm CLSA , the company is targeting to reduce debt by $400 million (about Rs 2,200 crore) during the year.