8/13/2019 Kingfisher on ground, banks money up in the air

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Kingfisher on ground,banks money up in the air

ANEESH PHADNIS

Mumbai, 6 December

About a year after KingfisherAirlines shut shop, the only onestill confident of a revival of theairline is Chairman Vijay Mallya.Just two months ago, the flam-boyant promoter of KingfisherAirlines and the UB groupannounced he was in talks withan investor to sell the air-line. He had given adeadline of 90 days for

the sale.But as days pass, few

share Mallyas optimism.Slowly, Indian banks arerealising they arent leftwith much, in terms oftheir loans to the airline.Mallya, who sold 25 percent in his United Spirits to

Diageo for $1 billion early thisyear, didnt use this money torepay the loans. The 14 banks,led by State Bank of India (SBI),which lent ~6,500 crore to theairline, are now involved in liti-gation over the money, asMallya has sued them in multi-ple courts. Bankers say theystarted the recovery process inMarch 2013, as the companysdues had exceeded ~2,400 crore.

Not just banks, investors andemployees of Kingfisher Ai-rlines are also going home emp-ty-handed. The airlines stockhas seen a steady decline from its peak market value of~3,888 crore in 2007, the com-

panys value has fallen to ~407crore. The stock is being quotedat about ~5. The airlines em-ployees havent received salariesfor the last year-and-a-half.

Kingfisher Airlines took offwell in 2005, even carving aniche for itself. But a ~550-croredeal in 2007 to buy out

Gopinaths Deccan Airways,along with other sundry mis-takes, pulled it down. Today,Mallya owes money to banks,employees, tax officials, cater-ers, aircraft leasing companies,fuel supplier HindustanPetroleum Corporation and totaxi operators, too.

Kingfisher Airlines did notrespond to an email query seek-ing comment.

The entire aviation industryhas seen difficult times. Thereason for airlines making loss-es has been a high increase infuel cost through the last coupleof years, coupled with weaken-ing of the rupee. Further, inter-

est costs have also increased dueto the purchase of new aircraft.The increased costs due to all t-hese factors cannot be directlypassed on to customers in viewof the price war among airlines,says M P Chhajed, a city-basedauditor.

Banks, meanwhile, started

selling shares of United Spiritsand Mangalore Chemicals andFertilisers, given as collateralagainst the loan, and netted

about ~600 crore. That is allbanks have secured so far; theirrecovery drive has been stymiedby the airline challenging allclaims against it. In March thisyear, UB group moved theBombay High Court against thesale of shares, but secured nointerim relief. In May, thelenders recalled the entire loanof about ~6,000 crore, asking

Mallya to return theentire amount at once.

Through the last

eight months, UB groupand the lenders havebeen at loggerheads overthe possession ofKingfisher House, theairlines office here, andMallyas villa in Goa.Both properties were giv-

en as security against the loan.

To recover the dues, the lendershave also filed applications inthe Debt Recovery Tribunal(DRT) Bangalore. The presid-ing officer of DRT Bangalore hasheard the banks, butKingfisher's defence against theinterim applications is yet to beheard. In the interim applica-tion, banks have sought a decla-ration of assets, injunctionagainst delineation of proper-ties, attachment of propertiesand such other relief, said abanker privy to the develop-ment.

We will not be able to gen-erate more than ~1,000 crorethrough the sale of shares and

from the Mumbai and Goaproperties, the banker said.Therefore, the case before DRTis crucial, as an order will allowlenders to lay claim even onMallyas and UB groups per-sonal and non-pledged assets.However, the tribunalwas overburdened

and a final recoveryorder in the Kingfishercase might take years,lawyers say.

The Karnataka HC,while hearing a wind-ing-up petition again-st the airline, askedbanks to maintain status quo,with regard to the companysMumbai office, till December 6,as the airline said it was in talkswith investors for a revival. Alocal court in Goa, too, stayedbanks attempts to take pos-session of Mallyas villa in Goa.Two days ago, banks secured arestraint order from DRTagainst UB group company

Kingfisher Finvest, restraining itfrom transferring any propertyor dealing with the proceedsfrom the sale of its shares.

If this year has been markedby acrimony, 2010 was a periodof bonhomie between the air-line and its lenders. In a contro-versial decision in November

2010, public sector banks, failingto read the signs of a financiallysick airline, restructured ~7,650crore of debt, converting a por-

tion of it into preferential shares.The banks announced a two-year moratorium on the repay-ment, reduced interest andadditional funding. After therestructuring, the airlines totaldebt fell to ~6,300 crore.

To worsen matters, in March2011, ~750 crore of preferentialshares issued to banks was con-verted into equity shares at~64.48 a share, a premium of 61per cent. During that quarter,banks and other financial insti-

tutions held 23 per cent stake inthe airline. A year later, whenthe lock-in period for share-holding ended, banks startedselling shares at a loss, reduc-ing their holding to 13 per cent.

The banks had hoped thedebt restructuring would pro-vide a breather to the airline and

allow it to restructure its opera-tions. On its part, the airlineannounced plans to reduce debtand make changes in its busi-ness model. Till then, the air-line ran two service models (thefull-service brand and the no-frills service, introduced afterthe airline bought Air Deccan).

The airline estimated thereduction in finance costs andtweaking the business modelwould lead to gains of ~2,190crore. It firmed up plans to hiveoff its ATR operations, loyaltyprogramme and engineeringunit into separate companies,none of which materialised.Despite a generous debt recast,

the airline was unable to gener-ate profits. In fact, it didntrecord profits in its seven yearsof operations. By March-end2013, the airlines accumulatedlosses stood at a staggering~16,000 crore.

By December2011, about a year

after the debtrestructuring, SBIsaid Kingfisherloans had turnedbad. The bank hadexposure of ~1,500crore to the airline.Soon, other banks

declared Kingfisher loans non-performing assets (NPAs).Following this, the airline madea pitch for additional loans, butthese were denied. Then, the air-line approached smaller banksin the consortium, banks thathadnt categorised the loans asNPAs. A series of meetingsbetween banks and KingfisherAirline executives followed.

Mallya then made a few presen-tations, outlining revival plansfor the airline. In October 2012,the airline stopped operations,after engineers stopped workdue to non-payment of salaries.The Directorate General of CivilAviation suspended the airlinesoperating permit. As for the sale

of the airline, Mallya remainsoptimistic.

Tomorrow: Zoom Developers

RISINGDEFAULTS

PART 2

GROUNDED

NOV 2010 : Banks restructure ~7 500crore loan. A portion of the loan wasconverted into equity, fresh funding

granted and repayment term extended

JANUARY-MARCH 2012: Banks begin todeclare KFA loans as NPA after the

airline fails to service interestOCTOBER 2012: Kingfishershuts operations

MARCH 2013: Lenders sell pledged sharesof United Spirits and Mangalore

Chemicals and Fertilisers Ltd

APRIL 2013: Kingfisher moves BombayHigh Court against sale of shares, does

not secure relief

MAY 2013: Lenders recall Kingfisher'sentire ~6 000-crore loan

CRASH LANDINGQuarter ended (~cr)

30

20

10

0Jan 2, 2012 Dec 6, 2013

21.05 4.98

Share price on BSE in ~

2,000

1,000

0

-1,000

-2,000

-3,000Dec

2010Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep

2011 2012 2013

Net sales Net profit

Source: Capitaline (Standalone data) Compiled by BS Research Bureau

Vijay Mallya owes

money to banks,employees, taxofficials, caterers,aircraft leasingcompanies, fuelsupplier, taxioperators