* Etihad concerned about legal issues-Indian govt source
* Telco Etisalat's experience in India may weigh
By Praveen Menon
DUBAI, Feb 21 The sudden display of caution by Etihad Airways over taking a stake in Jet Airways is the legacy of a string of failed forays by Gulf investors into India.
Etihad's chairman, who is also head of Abu Dhabi's sovereign wealth fund, told Reuters this week the Jet deal needed to be revised and it was too soon to say when a final agreement will be struck.
The backtracking on a deal reported to be near completion highlighted investor apprehension about India and recalled how the UAE's biggest telecom operator Etisalat was badly burned by a recent tilt at the south Asian country.
"It's a very difficult market to invest in and many investors have had their fingers burned," said Khuram Maqsood, executive director and head of private equity at Dubai-based Al Murjan International Holding.
"There's the age-old issue of poor corporate governance and lack of transparency, policy reversals and even government corruption.
"I think India has lost some of its shine recently. It has attractive long-term prospects (but) there are temporary dislocations."
A senior Indian government source told Reuters Etihad was concerned about potential "legal" issues relating to the investment and the two airlines were working to resolve them.
The source said Etihad's board did not want to replicate the "troubles" faced by Etisalat, which was dragged into a $37 billion telecoms corruption scam forcing it to shut down Indian mobile operations last year and write off $827 million relating to its local unit.
Etihad did not respond to an email seeking comment.
PAUSE FOR THOUGHT
The Etisalat experience is not the only one to give Abu Dhabi pause.
In 1997, Kuwait Airways and Bahrain's Gulf Air had to sell back stakes they bought in Jet's overseas holding company four years earlier to its founder Naresh Goyal after the government said the deal violated ownership rules.
A series of corruption scandals that have dogged the Indian government and its economy have also kept foreign investors at bay.
As well as scams in the telecoms and coal industries, India has also launched an enquiry into lobbying practices by Wal-Mart Stores Inc after a report that the giant retailer had pressed U.S. lawmakers to help gain access to foreign markets including India.
More recently, a $750 million defence contract by Italian firm Finmeccanica's unit AgustaWestland has run afoul of allegations of bribery.
Etihad's interest in Jet, first revealed almost a year ago, is for a 24-percent stake in the Indian airline for up to $330 million, sources have told Reuters. Terms have not been disclosed.
The Jet Airways deal would be the first foreign investment in India's aviation industry since the government relaxed ownership rules last September.
"Etihad is treading carefully around the red tape challenge in India," said Sudeep Ghai, managing partner at London-based aviation consultancy Athena Aviation.
"India ranks 132nd on the World Bank's Ease of Doing Business index - some 31 places below China and even one place below Nigeria. Failure to get to grips with this is killing foreign investment the airline industry sorely needs."
Etihad is no stranger to complex acquisition deals.
Its management negotiated stake purchases in four foreign airlines last year including Air Berlin and Virgin Australia, Aer Lingus and Air Seychelles.
The acquisitions were part of the eight-year old carrier's aim to catch up with regional giants like Dubai's Emirates and Qatar Airways and convert its base in Abu Dhabi into the top regional hub. (Additional reporting by Anurag Kotoky in New Delhi and Matt Smith in Dubai; Editing by David Cowell)
Fed official stands by Wall St reforms, says must complete work
NEW YORK, Dec 3 The United States "absolutely must" complete unfinished work ending the too-big-to-fail bank problem that helped plunge the global economy into recession eight years ago, an influential Federal Reserve policymaker said on Saturday.
'Drop those rates' Turkey's Erdogan says in new appeal for lower borrowing costs
ANKARA, Dec 3 Turkish President Tayyip Erdogan on Saturday repeated his call for lower interest rates and said the government would take steps to ensure cheaper borrowing costs to promote consumption and economic growth.