The SK Modi-owned company will sell convertible redeemable preference shares of Rs 100 each to potential foreign investors. The shares will offer a cumulative dividend of 14 per cent per annum. Shareholders will have the option to either convert these preference shares into equity after three years of allocation or redeem the preference shares at par within 5 years.

The expected conversion rates from preference shares to equity shares will be between 5 to 10 equity shares to a preference share.

The issue will be marketed through road shows held in United Kingdom, Canada, Europe, Middle East, Singapore, Hong Kong as well as in India. Platinum Securities International will act as lead managers to the issue.

Sources said that the new aviation policy guidelines have come as shot in the arm for ModiLuft. The fresh guidelines permit 40 per cent foreign shareholding indomestic airlines provided the stake is held by non-airline entities.

The permission to get foreign funding for private airlines has been welcomed as a number of private air carriers operating in India faced financial problems in the past and had to shut-down operations. Proceeds from the $50 million preference share issue will be used to revive ModiLuft. The airline has been grounded for the past two years. ModiLuft has chalked out a business plan for re-launch. The airlines plans to launch operations with a fleet of 5 aircraft in this year itself. The fleet will then be expanded to 12 in a phased manner between 1998 to 2001. The network of the airline will concentrate around the four metros in order to maximise revenues. The entire fleet will be built up by a single type fuel efficient aircraft. ModiLuft has entered into an agreement with Speedwings, a 100 per cent subsidiary of British Airways Plc. Speedwings will assist the airline in hiring senior managers. It will also help ModiLuft in puttingreservation systems and bag handling operations into place.