Lenders reject Kingfisher Airlines debt recast plan

Source :Sidhartha, TNN | Nov 2, 2011, 03.08AM IST


NEW DELHI: Vijay Mallya-promoted Kingfisher Airlines is back with a debt restructuring plea but banks are unwilling to take a fresh haircut this time citing the company's weak finances and the loss they incurred on converting a part of their loans into equity. In addition, they fear that a fresh recast will force them to treat the loans as a non-performing asset (NPA), in line with the Reserve Bank of India norms. 

Further, they pointed out that Kingfisher was yet to fulfill a part of its commitment which included filing of the assignment agreement for the brand. This agreement with the Registrar of Trademarks would transfer the ownership of the brand to the lenders which will help banks trigger the default clause. 

While Kingfisher has not formally approached lenders with a proposal, bankers said the private airline which has been incurring losses, is looking to raise additional short-term loans, issue lines of credit in lieu of cash deposits lying interest free with lessors, substituting high-cost rupee debt with low-cost foreign currency loans and also raise Rs 2,000 crore via a rights issue. 


Airline executives have, however, raised the issue with government functionaries who have swung into action to see if fresh support from lenders is possible. Kingfisher Airlines CFO A Raghunathan did not respond to a text message and calls. UB Group's head of finance Ravi Nedungadi said he could not speak as he was tied up in meetings. 

Lenders said the biggest stumbling block will be RBI since loans have been restructured more than once and the regulator will now demand downgrading of the asset to NPA category if banks provide fresh succour. In the absence of compliance with earlier stipulated conditions, the task is going to get tougher, they added. Further, they pointed to the loss incurred on conversion of debt into equity. Against the prevailing market price of Rs 40 a share, on March 31 this year, there was preferential allotment to SBI and ICICI Bank due to conversion of compulsorily convertible preference shares into equity shares at a price of Rs 64.48 each, which represented a 60% premium over the prevailing market price. Since the end of March, Kingfisher's share price has declined 40% and closed at Rs 24.10 on Tuesday. "Given the impaired financial position and low security cover, taking additional exposure in the airline is not advisable," said a bank chief. "It is going to be very difficult to convince my board once again," added the head of another bank.