Etihad Airways' stake purchase deal with Jet Airways has been challenged in a petition filed to India's supreme court.
Subramanian Swamy, a senior politician in the Bharatiya Janata Party, India's main opposition party, has demanded an investigation into the circumstances of the agreement, alleging that there have been "fraudulent, deceptive and corrupt acts by the authorities representing the government of India".
The petition alleges that the deal was unfairly linked to an increase in capacity rights in a bilateral agreement between India and Abu Dhabi. The Indian government this month approved an increase in the seat capacity between Abu Dhabi and India to 50,000 a week by 2015 from 13,300 a week now.
The petition’s allegations are that “… there has been a grant of largesse of national asset in favour of a foreign airline (Etihad Airways) resulting in undue enrichment and enormous pecuniary advantage to such foreign airline at the cost and expense of the public, national and domestic airlines as well as airports.”
It claims that the bilateral agreement will result in huge losses to Indian airlines and airports, describing this as a “fraud”.
“In order to facilitate the execution of this colossal fraud on the Indian exchequer, the foreign airline (Etihad Airways) has agreed to guarantee personal loans as well as pay a premium towards its foreign investment in a domestic airlines – Jet Airways,” it claimed. “Such grant of largesse is in the form of an unprecedented increase of capacity entitlements.”
Etihad and Jet both declined to comment.
This is another potential hurdle for the Jet and Etihad deal, which has faced delays in regulatory clearances after the Abu Dhabi carrier announced in April that it planned to take a 24 per cent stake in Jet as part of a US$600 million agreement. The move was part of Etihad’s strategy to invest in foreign airlines and expand its global network.
Jet's stake sale was approved by India's foreign investment promotion board in July, but it still has to be approved by the cabinet committee on economic affairs.
Etihad at the beginning of this month said it had extended the deadline for regulatory approvals for the second time until the end of September. At that time it said the deal was imminent.
Under the deal, Etihad would become the first foreign carrier to buy a stake in an Indian airline after the government in New Delhi last September permitted investment of up to 49 per cent in the country’s carriers for the first time.
Jet Airways has been undergoing senior management changes recently which are reported to be in preparation for the deal, with KG Vishwanath, the vice president of commercial strategy and investor relations, stepping down on Sunday. Anita Goyal, who is married to Jet’s chairman Naresh Goyal, moved from an executive position to an advisory role.
Saj Ahmad, the chief analyst at StrategicAero Research, said that India was a strong growth market but added that the “regulation and legislation that dictates things certainly puts investors off”.
Criticism was also fired at Emirates Airline's presence in India in the petition, which stated that the carrier had become known as India's "national airline" because "it operates more flights and carries more passengers to and from India than Air India, our national carrier".
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
