Mumbai, Dec 13 (IANS): Financially strained Kingfisher Airlines Thursday capped the stake of foreign institutional investors in the company at three percent.

The development is said to help the passenger carrier sell nearly 46 percent of the permitted 49 percent stake in the company to foreign airlines. The rest three percent will remain with foreign institutional investors (FIIs), qualified foreign investors (QFIs) or other non-strategic foreign investment.

Recently, the government allowed foreign carriers to buy up to 49 percent stake in Indian domestic airlines. Before this only FIIs or QFIs were allowed to invest up till 49 percent in the domestic airlines.

Kingfisher is also said to be in talks with Middle East based airlines for a possible stake sale to rescue it from its troubled financial position.

According to sectoral experts, foreign airlines will want to buy a maximum amount of the 49 percent stake, as the investment will be deemed as a long term investment.

"The company has been deliberating various alternatives to improve the financial position. In this connection, it has been advised that a fresh infusion of capital by a financial or strategic, Indian or non-resident investor is a possible alternative," the company said in a statement.

"With a view to keeping the company's capital structure in readiness for transactions, the board has decided no FII, QFI or other non-strategic foreign investment shall be permitted in the company beyond its current level of three percent."

The expected stake sale has helped the company's scrip at the BSE to touch its maximum circuit limit of Rs.17.27 per share, which is a gain of 4.98 percent from its Wednesday's close of Rs.16.45 per share.

The airline has a total debt of Rs.7,000 crore from a consortium of banks.

It has been asked by the Airports Authority of India (AAI) to pay back dues worth Rs.290 crore, or cease operations at Chennai and Kolkata airports.

Other airport operators, including oil companies and vendors, have also not got their dues.

The airline has been asked to prepare a revival plan and present it to the aviation regulator Directorate General of Civil Aviation (DGCA), which will take a final call on revoking the airline's operations licence.