The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Iranians have voted for an end to the conservative status quo. The surprise victory of Hassan Rohani, the sole moderate candidate, in the presidential race has shown the level of public discontent with the Islamic Republic’s hardliners, whose voices silenced others in the last few years. The high turnout also returns legitimacy to the electoral process after the rigged vote of 2009. Iran’s complex power structure means that radical shifts at home or abroad are unlikely. But the mood in Tehran has shifted.

Rohani is, in the Iranian context, a moderate. A former nuclear negotiator with the West, he says he wants to save the economy, implement a “civil charter” and create a less security-heavy environment. He also advocates a less confrontational relationship with the West, which tightened sanctions against Iran during Mahmoud Ahmadinejad’s fiery eight-year presidency.

Easing sanctions, which halved the country’s oil exports, is key to any economic turnaround. The currency has lost more than two-thirds of its dollar value over the past two years. Inflation has risen to 32 percent and the unemployment rate stands at 12 percent, according to official figures that may hide a harsher reality. Gross domestic product will shrink for a second consecutive year in 2013, according to International Monetary Fund forecasts.

The rial strengthened around 6 percent on news of Rohani’s win, but how much more he can achieve will depend on the will of “Supreme Leader” Ayatollah Ali Khamenei who has the final say on nuclear and foreign policy matters. That includes the situation in Syria, where Iran is also pitted against the West. Past initiatives by one of Rohani’s predecessors, reformist Mohammad Khatami, have been sunk or undone by resistance from conservative factions. The public mood could however persuade Khamenei he must soften his position on some issues.

For the West, it will take more than a change of tone by an Iranian president, whatever his reputation or intentions, to unwind the economic sanctions. But Rohani’s victory will embolden Iranian reformists and enable the country to better respond to the needs of a population, two-thirds of which were born after the 1979 revolution. At the very least, Khamenei’s apparent decision not to interfere with the vote shows that Iran maybe be moving again – this time, in the right direction.

DUBAI, April 24 (Reuters Breakingviews) – The Abu Dhabi
carrier is throwing indebted Jet Airways a $600 mln lifeline for
a 24 pct stake and control of its loyalty programme. But the
generous 32 pct premium suggests Etihad will expect more than a
minority role at the Indian airline.

Full view will be published shortly.

CONTEXT NEWS

- Abu Dhabi-based carrier Etihad Airways has agreed to buy a
24 percent stake in India’s Jet Airways as part of a deal worth
$600 million. Eithad will pay $379 million to buy 27.3 million
shares at 754.74 rupees each or a 32 percent premium to the
Indian carrier’s last closing share price.

- The airline will buy a majority stake in Jet’s frequent
flyer program for $150 million. The deal also includes the sale
and lease back of three pairs of Jet’s London Heathrow slots for
$70 million that was first announced in February.

- Jet founder Naresh Goyal will own 51 percent of the
airline after the deal and remain non-executive chairman. India
relaxed foreign ownership rules in September allowing foreign
carriers to buy up to 49 percent of local ones.

- The deal, which is subject to regulatory and shareholder
approval, will establish Abu Dhabi as a Gulf gateway for Jet’s
flights to the United States, Europe, Africa and the Middle
East.

- In the last two years, Etihad has purchased minority
stakes in Air Berlin, Virgin Australia, Aer Lingus, and Air
Seychelles.

- Reuters: India’s Jet Airways selling stake to Etihad for
$379 mln [ID: nL3N0DBGGJ]

- Reuters: Etihad confirms takes 24 pct stake in Jet Airways
for $379 mln

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own)

- For previous columns by the author, Reuters customers can
click on

(Editing by Pierre Briançon and David Evans)

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

A scarcity of takeover targets is feeding a desperate scramble in Middle East telecoms M&A. Bahrain’s incumbent operator Batelco is eyeing a stake in the enterprise unit of India’s Reliance Communications. It comes just months after agreeing a deal worth $1 billion to buy assets spanning 12 markets, including Monaco and the Channel Islands, from Cable & Wireless. Batelco’s pick-and-mix takeovers are symptomatic of a market where too many big telcos are chasing too few assets.

Batelco is in search of stable cash flows amid fierce competition in its home market. Bahrain accounts for 60 percent of revenue but profit there fell by almost one-third in 2012. Cash flow is weakening and the cash dividend payout ratio has fallen from 75 to 60 percent in just two years.

The problem is that Batelco, with a market value of just $1.6 billion, is a minnow in the Middle East. It lacks the financial firepower to compete for the few assets that do come up for grabs, like Vivendi’s 53 percent stake in Maroc Telecom worth around $6 billion. Larger rivals are also consolidating and looking for growth opportunities. Saudi Telecom Co., Ooredoo (formerly Qatar Telecom) and UAE operator Etisalat already have a large regional footprint and dominate with a combined market value of $47 billion.

It is hard for the smaller operators to be consolidators rather than targets. But many enjoy protection from government shareholdings. Oman did try to find a strategic partner for tiny Omantel in 2008 but the government aborted the deal. Any further reduction of state shareholdings now looks unlikely in the medium term given the strategic nature of telecoms and hyper-sensitivity of Gulf monarchies post-Arab spring.

Batelco’s M&A strategy may yet prove an effective response to its operational and strategic challenges. But it is also taking it into areas where it has limited experience, for example in managing the deep-sea cables that come with the Reliance unit. With sensible deals hard to do, small Middle Eastern telcos might just have to tough things out.

DUBAI (Reuters Breakingviews) – A scarcity of takeover targets is feeding a desperate scramble in Middle East telecoms M&A. Bahrain’s incumbent operator Batelco BTEL.BH is eyeing a stake in the enterprise unit of Reliance Communications(RLCM.NS: Quote, Profile, Research). It comes just months after agreeing a deal worth $1 billion to buy assets spanning 12 markets, including Monaco and the Channel Islands, from Cable & Wireless. Batelco’s pick-and-mix takeovers are symptomatic of a market where too many big telcos are chasing too few assets.

Batelco is in search of stable cash flows amid fierce competition in its home market. Bahrain accounts for 60 percent of revenue but profit there fell by almost one-third in 2012. Cash flow is weakening and the cash dividend payout ratio has fallen from 75 to 60 percent in just two years.

The problem is that Batelco, with a market value of just $1.6 billion, is a minnow in the Middle East. It lacks the financial firepower to compete for the few assets that do come up for grabs, like Vivendi’s 53 percent stake in Maroc Telecom worth around $6 billion. Larger rivals are also consolidating and looking for growth opportunities. Saudi Telecom Co. 7010.SE, Ooredoo (formerly Qatar Telecom) and UAE operator Etisalat already have a large regional footprint and dominate with a combined market value of $47 billion.

It is hard for the smaller operators to be consolidators rather than targets. But many enjoy protection from government shareholdings. Oman did try to find a strategic partner for tiny Omantel in 2008 but the government aborted the deal. Any further reduction of state shareholdings now looks unlikely in the medium term given the strategic nature of telecoms and hyper-sensitivity of Gulf monarchies post-Arab spring.

Batelco’s M&A strategy may yet prove an effective response to its operational and strategic challenges. But it is also taking it into areas where it has limited experience, for example in managing the deep-sea cables that come with the Reliance unit. With sensible deals hard to do, small Middle Eastern telcos might just have to tough things out.

CONTEXT NEWS

- Bahrain Telecommunications Co (Batelco) said on March 14 it is in talks with Reliance Communications to buy a stake in the Indian operator’s enterprise business unit.

- Separately, Peter Kaliaropoulos, Batelco Group Chief Executive Officer for Strategic Assignments, told Reuters the talks were about buying a stake in Reliance Globalcom.

- The Times of India reported that the Bahraini operator had valued Reliance Globalcom at $1.3 billion. Reliance would retain a minority stake should the deal be completed, the report added.

- In December, Batelco agreed to buy Cable & Wireless Communications’ Monaco and Islands division, which owns stakes in telecom operators in 12 markets. That deal was worth up to $1 billion.

- Batelco already owns Jordanian telecoms firm Umniah, 27 percent of Yemeni mobile operator Sabafon and minority stakes in Internet providers in Kuwait and Saudi Arabia, as well as being active in Egypt.

(Editing by Chris Hughes and David Evans)

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

By Una Galani

DUBAI, March 19 (Reuters Breakingviews) – The controversy
over the true value of Prince Alwaleed’s investment vehicle has
some simple remedies. Kingdom Holding 4280.SE, with stakes in
everything from Citigroup (C.N: Quote, Profile, Research) to Twitter, is at the centre of
a bitter row with Forbes magazine over the exact size of the
prince’s wealth. Part of the problem is that the Riyadh-listed
company suffers from a tiny free float, limited liquidity, and
puzzling share-price movements.

Kingdom has a listed value of $19 billion but only a 5
percent free float in a market where 30 percent is closer to the
norm. Alwaleed wanted to list up to one third when it went
public in 2007 but the firm and the regulator agreed at the time
that it would be too much for the market to absorb. The problem
is that stocks with small free floats are more susceptible to
share-price volatility or even market manipulation.

The prince’s flagship firm is actively exploring its options
to become a more liquid stock, according to a person familiar
with the company’s plans. One way would be for Alwaleed to sell
down. But that would look bad in the wake of the clash with
Forbes and would send the wrong signal about Kingdom’s value.

Alternatively, Kingdom could sell some new shares. The
difficulty here is that the firm doesn’t have an urgent need to
raise cash and can ill afford to run an inefficient balance
sheet.

Kingdom could of course issue stock in support of a big
deal. The snag is that it would have to be a sizeable
acquisition to result in a meaningful dilution of Alwaleed. And
the target might be loathe to take paper whose value is the
subject of such a fraught debate. Still, investment banks could
be hired to conduct an independent valuation.

The radical option would be to delist. That would be the
least palatable for the prince. Fading into the background isn’t
Alwaleed’s style and risks being perceived as failure in a
region where initial public offerings are a symbol of pride. But
if an illiquid free float is causing such difficulty, it is hard
to see how the listing’s benefits outweigh its costs.

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CONTEXT NEWS

– Saudi Prince Alwaleed bin Talal and his flagship
investment vehicle, Riyadh-listed Kingdom Holding, said on March
5 that it had severed ties with Forbes’ billionaires list after
a row over the prince’s net worth.

– Forbes magazine subsequently published a lengthy
investigation into Kingdom Holding. The prince controls 95
percent of Kingdom’s shares.

– The magazine said: “We value his [Alwaleed’s] Kingdom
Holding stake at $10.6 billion, or $9.3 billion less than what
the market cap suggests”.

– Shadi Sanbar, chief financial officer of Kingdom, said:
“KHC puts a premium on tracking the true value of our
investments and it is contrary to both our practice and nature
to assist in the publication of financial information we know to
be false and inaccurate.”

– Kingdom was listed in 2007, and holds stakes in Citigroup
and Twitter.

– Forbes: Prince Alwaleed and the curious case of Kingdom
Holding stock link.reuters.com/gek76t

– Kingdom Holding press release link.reuters.com/hek76t

– For previous columns by the author, Reuters customers can
click on [GALANI/]

(Editing by Chris Hughes and Sarah Bailey)

((una.galani@thomsonreuters.com))

((Reuters messaging:
una.galani.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS ALWALEED/SAUDI/

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and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)

(Refiles to fix location in dateline)

By Una Galani

DUBAI, Feb 19 (Reuters Breakingviews) – Qatar’s sovereign
wealth fund may regret spinning off part of its business. The
Gulf emirate known for snapping up high-profile stakes in
publicly listed entities is giving ordinary investors a chance
to get a piece of the action. That, though, opens up the
absolute monarchy to one risk it loathes: public criticism.

Doha Global Investment, as the new fund is called, is
Qatar’s latest asset-management foray – the sovereign fund has
smaller joint ventures with Credit Suisse (CSGN.VX: Quote, Profile, Research) and Barclays
(BARC.L: Quote, Profile, Research). Doha Global creates a new channel to redistribute
Qatar’s hydrocarbon wealth as well as boost liquidity on the
local exchange. And by partnering with Qatar Holding, which will
seed the fund with $3 billion, it should have access to the
world’s best investment opportunities.

So far, so good. But the aim is to match Qatar Holding’s
stake with another $3 billion from Qatari nationals by a public
stock offering. Foreign investors will also be allowed to buy a
limited number of shares, probably once the fund goes looking
for another $6 billion.

Bringing in such outside capital means Doha Global’s
executives will have to answer to shareholders. They will also
be held accountable to a board of directors, half of them from
the private sector.

That’s far more scrutiny than Qatar’s investment fund – or
its monarchy – is accustomed to and may cramp its style.
Sovereign funds do well because they can move quickly, take big
risks and adopt a long-term outlook. That may be harder to do
with public shareholders and a board.

It has already succumbed to setting a target – Qatar is
promising that Doha will pay a 5 percent dividend in the first
year. Qatar is a shrewd dealmaker and claims to have delivered a
17 percent return last year. But its performance has been
boosted in recent years thanks in part to making timely
investments in distressed targets.

Generating such profit may be harder as markets recover -
and any losses or controversies will be subject to public
scrutiny. This new fund won’t allow Qatar to decide when to step
out of the shadows.

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CONTEXT NEWS

– Qatar will create a $12 billion investment firm and list
it on the local stock exchange, the country’s sovereign fund
said on Feb. 19. The fund will be called Doha Global Investment.

– Qatar Holding – the investment arm of the Qatari sovereign
fund – said the new firm will invest in assets in any sector
around the world.

– “You name it – shares, bonds, real estate, private equity.
We will look at every sector in every country around the world,”
Hussain al-Abdullah, Qatar Holding’s vice chairman, said at a
news conference.

– The sovereign fund generated a rate of return of 17
percent last year, Abdullah added.

– Qatar Holding will transfer $3 billion-worth of assets
into the new firm, with a similar amount raised in an initial
public offering on the Qatar Exchange. A further $6 billion will
be raised at a later date.

– Qatar Holding will own 50 percent of the fund, with the
rest floated on the stock exchange. The firm will have a
nine-member board, including a chairman.

– Reuters: Qatar to list $12 bln firm with assets from
wealth fund [ID:nL6N0BJ6S8]

– For previous columns by the author, Reuters customers can
click on [GALANI/]

(Editing by Antony Currie and Emily Plucinak)

((una.galani@thomsonreuters.com))

((Reuters messaging:
una.galani.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS QATAR/

(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Dubai has rediscovered its appetite for grand designs. A replica Taj Mahal four times bigger than the original, the world’s biggest Ferris wheel, several new mega-malls, and over 100 new hotels are amongst a raft of extravagant projects aiming to boost tourism in the emirate. But lingering debt woes from its last boom-and-bust cycle should hopefully reduce the risk of runaway spending.

The strategy isn’t quite a repeat of the one that led the emirate to the verge of bankruptcy in 2009, when Dubai was left hanging by a debt-fuelled real estate bubble and a series of high-profile overseas acquisitions at aggressive valuations. The economic fundamentals have improved. While residential and commercial real-estate prices remain well below their peak, there is room for new investment in retail and tourism. Hotel occupancy rates were at 90 percent last year, says Ernst and Young. Shopping malls in central areas are packed. New Bollywood theme parks and an expansion of giant Chinese malls will support the emirate’s push to woo more visitors from Asia and further align its economy to fast growth markets to the east.

Dubai is drawing on its relative strength in infrastructure and as a regional safe-haven. The city-state currently enjoys almost 10 million foreign visitors in a year, five times its population. Tourist numbers could grow substantially if Dubai can convince a larger chunk of the 58 million passengers that landed in Dubai International last year to turn their transit into a short break.

Yet Dubai has said little about how it will fund its bold endeavours. That’s a sensitive issue. Lenders to flagship conglomerate Dubai World and property developer Nakheel have been promised 100 percent repayment of their loans but have to wait until at least 2015 to get any money back as part of a multi-billion restructuring plan contingent on asset sales which are yet to materialise.

Dubai as a sovereign only raised $1.25 billion in public debt markets last year. The island project featuring the giant Ferris wheel will alone cost $1.6 billion. Local banks are already overexposed to government-related entities. It is also unclear how readily foreign ones will lend directly to firms like Meraas Holding, owned directly by the ruler of Dubai and dubbed by analysts as “the new Nakheel” because of the multiple mandates it has won. Royal ownership, after all, provided little protection to those that loaned billions to Dubai Holding.

The region can ill afford another boom and bust. Unless memories are short, lender restraint may help prevent that this time round.

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own)

By Una Galani

DUBAI, Jan 23 (Reuters Breakingviews) – Politics will play a
major part in the sale of Maroc Telecom (IAM.CS: Quote, Profile, Research). Vivendi
(VIV.PA: Quote, Profile, Research), the French media and telecom conglomerate, is in
shrinking mode. It hasn’t had any trouble drumming up interest
from far-flung corners of the world for its 53 percent stake in
the listed North African telecoms operator. Qatar Telecom
QTEL.QA, the UAE’s Etisalat ETEL.AD and South Korea’s KT
Corp (030200.KS: Quote, Profile, Research), have all submitted expressions of interest.
And France Telecom (FTE.PA: Quote, Profile, Research) is also keeping an eye on the sale.

Maroc Telecom offers a rare chance to take control of a
leading operator in the region, but it is also a large and
pricey acquisition. Any bidder would have to stump up as much as
6 billion euros ($7.9 billion) after extending the offer to
minority shareholders, assuming the government of Morocco will
want to hold onto its 30 percent. At six times earnings before
interest, taxes, depreciation and amortisation, the operator
trades at a 20 percent premium to its peers in the region.

Although Maroc Telecom has suffered fierce competition in
its home market, which accounts for 80 percent of its revenue,
the operator generates cash, and boasts a 56 percent EBITDA
margin. Pricing pressure is expected to ease next year and
there’s room for growth in broadband and mobile data. Nor is
there any sign yet of a slowdown in spite of rising political
instability in Maroc’s high-growth international markets, which
include Mali and Mauritania.

The Moroccan government will have to approve of any buyer.
Given historical country ties, Rabat would probably prefer a
deal that would see the backbone of its telecoms network end up
with France Telecom. But that would require a near-simultaneous
sale of the French operator’s controlling stake in Morocco’s
number two player, Meditel. Faced with financial challenges of
its own, France Telecom may decide not to embark on such a
complex deal.

That makes the Arab bidders the favourites. Rabat has kept
its distance from the Gulf in the past, but Morocco is now
hoping its fellow monarchies will support its economy, which is
heavily exposed to the euro zone. The purchase of Maroc Telecom
would make Qatar Telecom’s footprint in the Maghreb almost
complete. And for Etisalat, a successful bid would mark a return
to acquisitions after a three-year hiatus.

With so many politically-acceptable bidders, Vivendi
shouldn’t have too much trouble closing a sale.

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CONTEXT NEWS

– Etisalat, the United Arab Emirates’ incumbent telecom
operator, on Jan. 17 said it had submitted a “preliminary
expression of interest” for Vivendi’s 53 percent stake in Maroc
Telecom.

– Qatar Telecom has submitted a non-binding indicative offer
for the Moroccan operator and is being advised by JPMorgan
Chase, according to a person familiar with the situation.

– South Korean telecommunications firm KT Corp has also
submitted a letter of intent to buy at stake in Maroc Telecom, a
spokeswoman for the company said in December.

– A bid for Vivendi’s stake would trigger a mandatory offer
to minority shareholders including the Moroccan government’s
stake of 30 percent.

– There is no official deadline set for offers, but Vivendi
hopes to sign a deal before the end of the first quarter of
2013, one source told Reuters in October.

– France Telecom owns a 40 percent stake in Morocco’s
second-biggest operator Meditel.

– Maroc Telecom has a market capitalisation of $11.3
billion.

– Reuters: Etisalat eyes Vivendi’s $5.8 bln Maroc Tel stake
[ID:nL6N0AM7E7]
- For previous columns by the author, Reuters customers can
click on [GALANI/]

(Editing by Pierre Briançon and David Evans)

((una.galani@thomsonreuters.com))

((Reuters messaging:
una.galani.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS MAROC/

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SINGAPORE, Dec 14 (Reuters Breakingviews) – Abu Dhabi’s Etihad Airways is spoilt for choice in India: It could decide to be a white knight to billionaire Vijay Mallya’s beleaguered Kingfisher Airlines. Or the Gulf carrier could snap up a smaller stake in Jet Airways, which controls a quarter of the domestic Indian market. The latter looks the better bet.

On the face of it Kingfisher, whose market value is about one-fourth of Jet’s $960 million, is the cheaper option. It also offers the tempting prospect that Etihad could gain effective operational control through a 46 percent shareholding. But Kingfisher carries additional risks. Its licence was suspended by India’s aviation regulator in October and its employees haven’t been paid for months. Kingfisher’s stripped-down fleet of 12 aircraft is one-eighth of Jet’s capacity.

Etihad’s arrival would have a reasonable chance of convincing the Indian government to reinstate Kingfisher’s licence. However, any equity injection would probably have to go hand-in-hand with Kingfisher’s creditors writing off some more of its $1 billion in long-term debt. That could be tricky: banks are nursing 70 percent mark-to-market losses on the shares they received as part of a debt-for-equity swap in March 2011. Though liquidation would be the worst outcome, lenders will still drive a hard bargain.

An equivalent investment would give Etihad a smaller chunk of better-run Jet, with which it already has code-sharing deals. Whether its overall strategy of buying minority stakes in everything from Air Berlin and Air Seychelles to Aer Lingus and Virgin Australia is viable is a moot question. Etihad cites cost synergies, but the deals don’t necessarily bring big benefits that the airline, which had its first full year of profit in 2011, could not extract without equity injections. Besides, the industry is littered with examples of minority investments gone wrong.

If Etihad succumbs to the lure of India and decides to go ahead with its biggest investment to date, Jet is the better way into a market that is currently stagnant and distorted by high fuel taxes. Kingfisher is just too exciting.

CONTEXT NEWS

- Etihad is eyeing two of India’s airlines as potential targets for investments, the Gulf carrier’s chief executive confirmed on December 11.

- Kingfisher Airlines issued a statement saying it was in talks for an equity infusion with the Abu Dhabi carrier after a local newspaper reported Etihad was close to buying a 48 percent stake. A separate source close to the situation said that Etihad is also keen on Jet Airways.

- Any deal would be for a minority stake. “We don’t want to take over someone’s airline,” Etihad CEO James Hogan said in an interview with the Financial Times.

- Kingfisher’s operating licence was suspended by the Indian aviation regulator on October 20 after it cancelled all flights because of a labour dispute.

- On December 13, Kingfisher’s board capped foreign institutional ownership at the current 3 percent level, in order to allow for the possibility of a strategic, foreign investor in the firm.

- In September, India allowed 49 percent foreign ownership, including by overseas carriers, in local airlines.

- Reuters: Kingfisher in stake sale talks with Etihad, others

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Peter Thal Larsen and Katrina Hamlin)

SINGAPORE (Reuters Breakingviews) – Abu Dhabi’s Etihad Airways is spoilt for choice in India: it could decide to be a white knight to billionaire Vijay Mallya’s beleaguered Kingfisher Airlines (KING.NS: Quote, Profile, Research). Or the Gulf carrier could snap up a smaller stake in Jet Airways (JET.NS: Quote, Profile, Research), which controls a quarter of the domestic Indian market. The latter looks the better bet.

On the face of it Kingfisher, whose market value is about one-fourth of Jet’s $960 million, is the cheaper option. It also offers the tempting prospect that Etihad could gain effective operational control through a 46 percent shareholding. But Kingfisher carries additional risks. Its licence was suspended by the aviation regulator in October and its employees haven’t been paid for months. Kingfisher’s stripped-down fleet of 12 aircraft is one-eighth of Jet’s capacity.

Etihad’s arrival would have a reasonable chance of convincing the government to reinstate Kingfisher’s licence. However, any equity injection would probably have to go hand-in-hand with Kingfisher’s creditors writing off some more of its $1 billion in long-term debt. That could be tricky: banks are nursing 70 percent mark-to-market losses on the shares they received as part of a debt-for-equity swap in March 2011. Though liquidation would be the worst outcome, lenders will still drive a hard bargain.

An equivalent investment would give Etihad a smaller chunk of better-run Jet, with which it already has code-sharing deals. Whether its overall strategy of buying minority stakes in everything from Air Berlin and Air Seychelles to Aer Lingus and Virgin Australia is viable is a moot question. Etihad cites cost synergies, but the deals don’t necessarily bring big benefits that the airline, which had its first full year of profit in 2011, could not extract without equity injections. Besides, the industry is littered with examples of minority investments gone wrong.

If Etihad succumbs to the lure of India and decides to go ahead with its biggest investment to date, Jet is the better way into a market that is currently stagnant and distorted by high fuel taxes. Kingfisher is just too exciting.

CONTEXT NEWS

- Etihad is eyeing two of India’s airlines as potential targets for investments, the Gulf carrier’s chief executive confirmed on December 11.

- Kingfisher Airlines issued a statement saying it was in talks for an equity infusion with the Abu Dhabi carrier after a local newspaper reported Etihad was close to buying a 48 percent stake. A separate source close to the situation said that Etihad is also keen on Jet Airways.

- Any deal would be for a minority stake. “We don’t want to take over someone’s airline,” Etihad CEO James Hogan said in an interview with the Financial Times.

- Kingfisher’s operating licence was suspended by the Indian aviation regulator on October 20 after it cancelled all flights because of a labour dispute.

- On December 13, Kingfisher’s board capped foreign institutional ownership at the current 3 percent level, in order to allow for the possibility of a strategic, foreign investor in the firm.

- In September, India allowed 49 percent foreign ownership, including by overseas carriers, in local airlines.

(The author are Reuters Breakingviews columnists. The opinions expressed are their own)

(Editing by Peter Thal Larsen and Katrina Hamlin)