India's Securities and Exchange Board (SEBI) has vetoed a move by the Mauritius-registered Elara India Opportunities Fund to convert SpiceJet (SG, Delhi International) warrants into equity shares because the fund has failed to comply with beneficial ownership norms, according to the Moneycontrol digital newspaper.
The fund wants to convert INR4.16 billion rupees (USD48.7 million) worth of warrants into shares. However, the fund lost its SEBI-issued foreign portfolio investors licence in March 2024 after failing to disclose required details about its ultimate beneficial owners.
Two months before that, in January 2024, Elara India Opportunities Fund had picked up the warrants in a deal that required it to pay SpiceJet 30% of the warrants' value upfront and the remaining 70% when converted into equity shares. The deal saw Elara acquire 83.3 million shares at INR50 (USD59 cents) each. At the time of publication, SpiceJet shares are trading marginally higher at around INR51 (USD60 cents) each.
Elara India Opportunities Fund is a venture capital fund managed by Elara Capital, a Mumbai-headquartered investment bank. The fund invests in seed to post-IPO equity stages, focusing on transportation, travel, and hospitality, among other things. It is one of many investment funds domiciled in a country with an attractive tax regime.
Elara India Opportunities Fund had asked SEBI to make an exception to the 'no licence, no conversion' rule, saying it wanted to divest its SpiceJet investment via open market shares. The regulator declined the request. The fund has since taken the matter to India's Securities Appeal Tribunal, arguing the warrants are "practically worthless" if they cannot be converted.
A rebuff from the tribunal would result in the investment fund writing off its initial INR1.25 billion (USD14.6 million) deposit and SpiceJet having to go at hunting for another investor to cover the INR2.91 billion (USD34 million) it had anticipated receiving from the conversion.
SpiceJet has spent much of the past 18 months raising capital to stabilise operations and shore up its balance sheet. The January 2024 deal with Elara was part of a broader fund-raising campaign that, at the time, anticipated raising INR7.44 billion (USD87 million) by issuing warrants and equity shares to 54 sophisticated and institutional investors. However, the airline ultimately did not collect the full targeted amount. More successfully, SpiceJet later raised INR30 billion (USD351 million) in an oversubscribed qualified institutional placement.
