Kingfisher caps foreign institutional investors for possible stake sale

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Kingfisher Airlines has moved to cap foreign institutional investment in its airline at 3% to pave way for a possible equity acquisition by a foreign airline.

Under the country's laws, all foreign investment in an airline is capped at 49%. It is understood that foreign institutional investors now hold less than 3% of the airline.

The 3% cap means that a foreign investor can buy up to a 46% stake in Kingfisher.

In a statement on the Bombay Stock Exchange, Kingfisher said the decision was made by the board at a meeting on 12 December, "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".

The beleaguered carrier adds that it has, for some time, been seeking various alternatives to improve its financial position.

"In this connection, it has been advised that a fresh infusion of capital by a financial or strategic, Indian or non-resident investor is a possible alternative," says Kingfisher.

The board's decision comes on the same day that Kingfisher confirmed it is in talks with Middle Eastern carrier Etihad Airways about a possible equity investment.

Kingfisher had, however, said that Etihad is one of several investors it is in discussions with, and that matters are only at the negotiation stage. But local media reports said that Etihad is close to buying a 48% stake in the cash-strapped Indian carrier.

The cap on foreign institutional investment takes immediate effect and the airline will also seek any other necessary approvals, says Kingfisher.

Kingfisher grounded its fleet and suspended operations on 1 October after employees went on a strike because of the non-payment of salaries. India's directorate general of civil aviation then suspended Kingfisher's operator certificate on 20 October after the airline failed to satisfactorily respond to a show cause notice.

In September, India announced that it is removing the ban and allowing foreign carriers to take up to a 49% stake in domestic carriers. This is so as to support the country's ailing airline sector.