Dr. Manmohan Singh
July 29, 2013
Prime Minister
7 Race Course Road
New Delhi
Re: Jet Airways Etihad Deal
Dear Prime Minister:
I draw your attention to further developments relating to the Jet-Etihad deal which raise serious national security concerns, besides adversely affecting our national interest.
I would like to again re-emphasize the very apparent collusion in the UAE bilateral and the Jet-Etihad deal and the serious national security concerns arising there from. I expect that you would put a hold on both the India-UAE “bilateral” and the Jet Etihad proposed deal until a thorough independent investigation was made. But I find instead enormous and unbecoming haste in the manner in which the entire transaction has been sought to be railroaded.
I have recently written to you on how inappropriate it is for SEBI to determine ‘effective control’ applicable to FDI and in particular to Civil Aviation. As I understand, ‘effective control’ of the airline needs to be examined in the context of the arrangements envisaged between the shareholders.
I believe that the proposed operational arrangement between Jet Airways and Etihad airlines is in conflict with the civil aviation regulation relating to ‘ownership’ and ‘effective control’ of an airline. The cosmetic modifications made by Etihad and Jet as recently as on the 25th of July, 2013 are in order to manage a favorable decision from FIPB, and alarmingly do give ‘effective control’ to Etihad. FIPB would be ill advised to proceed on the basis of these cosmetic modifications since it would be blatantly illegal.
In the process of examining the ownership and effective Control, Government needs to first verify the Indian ownership and control which is supposedly in the hands of an NRI, Naresh Goyal. Eighty Four percent is held in the erstwhile OCB – Tail Winds where the ownership and funding has been questioned for many years without any real answers emerging.
It is essential to examine the ownership of Tail Winds Limited registered in Isle of Man a tax haven company as to who the true shareholders and beneficial owners are, prior to and as a consequence of the proposed transaction so as to establish and ensure that it is a genuine NRI 100% owned company of the promoters and has no other shareholder or financing from inappropriate and unacceptable sources.
Unless this is done the criteria defined in the policy of Ownership and effective Control would not have been suitably validated and hence the proposal to grant approval properly and adequately scrutinized. All scrutiny and investigation in the past have for one vested reason or another been suppressed and never acted upon putting Indian security gravely at risk. The allegations of serious underworld connections from the UAE continue to haunt Jet’s ownership and need to be pre-examined by the IB, DRI and other Intelligence services.
The matter relating to Security has been of serious concern to many of us and requires even more serious investigation. In December 2001, Mr. Anjan Ghosh the then Joint Director IB wrote to the Ministry of Home Affairs confirming information about Naresh Goyal’s underworld links with Chhota Shakeel and Dawood Ebrahim as also the fact that the funding of Jet Air was with “tainted Indian money laundered and recycled”. This document had been already submitted and was admitted as a document in the Bombay High Court. It has since not be overruled or contradicted.
Under these circumstances it is essential that a complete investigation be done on the ownership and antecedents of Jet and Jet Air from the year 1993 through to the date of the transaction including the effective control post the transaction. This investigation should be done by a SIT of the CBI, the DRI and IB and other appropriate agencies and information be also sought under the Tax Information Exchange Agreement with the Isle of Man on the company Tail Winds.
Unless it is established as to who have been the real owners of Jet Air from inception and more specifically over the years it would be a national security threat and risk for India to proceed with a transaction where the control of an airline could have been and continue to be outside of India with the real management and ownership interests unknown.
A great deal of material is available to support that prima facie monies have been circulated through the company over the years by various methods including by the appointment of GSA’s both in India and abroad in companies such as Jet Air Pvt. Ltd., all owned by Naresh Goyal.
In contrast, it has never been established as to who the real owners of Tail Winds are and how they are funded. It is alleged that the funds received now from Etihad have been syphoned out from Jet Airways India for the purpose of reorganizing and restructuring the shareholding of Tail Winds to enable Mr. Naresh Goyal to now show himself as the 51% owner as an NRI. In order to do this he needs to repay the original financers or circulate the funds in such a way that the shares get transferred from Tail Winds to his personal name.
I may point out that the DIPP in their compliance check-list as recently as 27th May 2013 stated that “The details of the GOI approval for M/s. Jet Airways (India) Limited as well as shareholding pattern of OCB (M/s. Tail Wind) have not been submitted”.
Further it also solicits guidance if NRI’s share should be included under 49% cap or not. I believe that this has been enthusiastically ruled upon by the Minster of Commerce in order to facilitate the Jet deal. It also records that Etihad / Jet has not provided the shareholder agreements.
In this regard, the Government should go into the details as to why the value of Jet, which is valued by the stock market at around US$ 614 Mn. (as on 9th July 2013) is being considered differently by Etihad at approximately US$ 1582 Mn. considering the direct and indirect benefits inuring to Jet through sale of UK slots, sale of Privilege Memberships, and direct investment in Jet of US$ 375 Mn.
In addition Jet Air has been given a soft loan of $ 300 mn. This clearly shows that the entire valuation of Jet is not based on the intrinsic worth of the company but on the value of India’s bilateral Rights which are now being given to Abu Dhabi, to benefit their national airline and Mr. Naresh Goyal.
While on this subject, I would like to highlight the sensitivity that the aviation sector has in terms of national security. There are key concerns relating to operations of foreign controlled airlines on our defense airports and the operations of these airlines in times of national emergency.
You will appreciate it not without reason that the mature aviation jurisdictions like US and Europe give lot of emphasis in their laws and regulations on ownership and control of airlines registered in their jurisdiction. In this background I am also dismayed to learn from reliable sources that rather than addressing the national security issues, under your directions Government is considering enhancement of FDI (including that of foreign airline) to 74% and simultaneously amend the civil aviation law to remove the ownership and control requirements.
In fact, as I have been informed, the committee constituted for the purpose of FDI liberalization does not find aviation to be a sensitive issue in the context of our national security. I earnestly appeal to you to please consult the Ministry of Defence and other security/intelligence agencies and also aviation stake holders like the airlines, airports etc. before considering such far reaching policy change.
I would like to draw your attention to the fact that even the most developed economies like the US and EU have clear restrictions on ownership and effective Control in order to safeguard their National security and interest. In the case of the US, it is 25% with voting rights and 24% with non-voting. In the case of the EU, it is 49%. Even the bilateral agreements between Countries provide that the bilateral rights can only be utilized by Airlines where the effective ownership and Control rests with Nationals in their respective Countries. In this connection the enclosed article in Business Line newspaper is revealing.
Yours Sincerely
Subramanian Swamy
Jet, Etihad must ink commercial pact only after shareholder agreement: SEBI
Regulator’s clarifications to be placed before FIPBNew Delhi, July 28: The Securities and Exchange Board of India has said that Jet Airways and Etihad Airways should enter into a Commercial Cooperation Agreement only after culmination of the Shareholder Agreement as the former appears to give an “upper hand” to Etihad on commercial matters and was also one of the conditions for making investments.
The Shareholder Agreement (SHA) governs the rights and obligation of shareholders while the Commercial Cooperation Agreement (CCA) helps enhance business, profitability and competitiveness through joint initiatives.
This is part of a 24 point-clarification given by SEBI to the Finance Ministry on the issues of change of ownership and control of Jet, after the deal.
In its note, SEBI has highlighted some clauses of CCA that might give an upper hand to Etihad.
These points include sourcing candidates for senior management position, consolidation of sales office and general sales arrangements to support sales for Jet in UAE and Etihad taking a lead role in negotiations with suppliers, besides others. However, SEBI said that these might be meant for exploiting the operational synergies between the two companies. The regulator has also said that the right of Etihad to appoint a Vice-Chairman will not have any significant impact on the issue of control.
Meanwhile, both the companies have changed the controversial clause related to the appointment of Independent Director and Chief Executive Officer, where the board will have the final say.
FIPB meeting The clarifications given by SEBI and the revised shareholder agreement will be placed before the Foreign Investment Promotion Board on Monday when it will meet to consider the Rs 2,058-crore Jet-Etihad deal, besides other proposals.
The Economic Affairs Secretary Arvind Mayaram is the Chairman of the board.
The Department had sought SEBI’s views on the issue of substantial ownership and effective control and applicability of takeover codes, besides minimum public shareholding norms.
Execution of CCA is one of the conditions for making the investment by Etihad and forms part of SHA.Therefore, “SEBI is of the view that CCA should not be entered between the parties at this juncture and the issues covered under CCA should be decided by the respective boards of Jet and Etihad after the culmination of SHA,” the regulator said.
It also said that CCA should not undermine the powers of the board of the company at any point of time to enter or exit such commercial arrangement.
“If such CCA comes into existence in future, the same may be examined by the concerned authorities at that point in time, according to extant provision of the law,” it further added.
shishir.sinha@thehindu.co.in
Revised agreement Revised shareholder agreement, corporate governance code, commercial cooperation agreement submitted on July 25 Board will have 12 directors, 4 to be nominated by Jet, 2 by Etihad. There will be six independent directors Jet will nominate Chairman while Etihad will nominate Vice-Chairman Board will be final say in the appointment of Independent Director, CEO (This article was published in the Business Line print edition dated July 29, 2013)
Regulator’s clarifications to be placed before FIPB
New Delhi, July 28:
The Securities and Exchange Board of India has said that Jet Airways and Etihad Airways should enter into a Commercial Cooperation Agreement only after culmination of the Shareholder Agreement as the former appears to give an “upper hand” to Etihad on commercial matters and was also one of the conditions for making investments.
The Shareholder Agreement (SHA) governs the rights and obligation of shareholders while the Commercial Cooperation Agreement (CCA) helps enhance business, profitability and competitiveness through joint initiatives.
This is part of a 24 point-clarification given by SEBI to the Finance Ministry on the issues of change of ownership and control of Jet, after the deal.
In its note, SEBI has highlighted some clauses of CCA that might give an upper hand to Etihad.
These points include sourcing candidates for senior management position, consolidation of sales office and general sales arrangements to support sales for Jet in UAE and Etihad taking a lead role in negotiations with suppliers, besides others. However, SEBI said that these might be meant for exploiting the operational synergies between the two companies. The regulator has also said that the right of Etihad to appoint a Vice-Chairman will not have any significant impact on the issue of control.
Meanwhile, both the companies have changed the controversial clause related to the appointment of Independent Director and Chief Executive Officer, where the board will have the final say.
FIPB meeting
The clarifications given by SEBI and the revised shareholder agreement will be placed before the Foreign Investment Promotion Board on Monday when it will meet to consider the Rs 2,058-crore Jet-Etihad deal, besides other proposals.
The Economic Affairs Secretary Arvind Mayaram is the Chairman of the board.
The Department had sought SEBI’s views on the issue of substantial ownership and effective control and applicability of takeover codes, besides minimum public shareholding norms.
Execution of CCA is one of the conditions for making the investment by Etihad and forms part of SHA.
Therefore, “SEBI is of the view that CCA should not be entered between the parties at this juncture and the issues covered under CCA should be decided by the respective boards of Jet and Etihad after the culmination of SHA,” the regulator said.
It also said that CCA should not undermine the powers of the board of the company at any point of time to enter or exit such commercial arrangement.
“If such CCA comes into existence in future, the same may be examined by the concerned authorities at that point in time, according to extant provision of the law,” it further added.
shishir.sinha@thehindu.co.in
Revised agreement Revised shareholder agreement, corporate governance code, commercial cooperation agreement submitted on July 25 Board will have 12 directors, 4 to be nominated by Jet, 2 by Etihad. There will be six independent directors Jet will nominate Chairman while Etihad will nominate Vice-Chairman Board will be final say in the appointment of Independent Director, CEO
(This article was published in the Business Line print edition dated July 29, 2013)