Vijay Mallya set to lose more assets

 Live Mint :Mihir Dalal &   |  P.R. Sanjai  :Wed, Apr 10 2013. 10 43 PM IST

Kingfisher lenders sell pledged shares worth millions in USL, MCF; UBHL’s stake in airline falls to 21.36%

UB Group chairman Vijay Mallya is set to lose more of his assets after lenders to Kingfisher Airlines Ltd invoked pledges worth millions of shares in United Spirits Ltd, Mangalore Chemicals and Fertilizers Ltd (MCF), as well as his grounded airline.

Mallya has investments in the UB Group companies partly through his holding firm, United Breweries (Holdings) Ltd (UBHL).

A group of lenders, led by the State Bank of India, is selling shares to recover some Rs.7,000 crore loaned to Kingfisher Airlines, as the airline— which has been grounded since October—has been unable to repay debt. The shares were pledged by the UB Group as security for loans taken by Kingfisher.

UBHL’s investment in Mangalore Chemicals slumped to just 3.44% from 24.51% earlier, the company said in a filing to the National Stock Exchange on Tuesday.

Mangalore Chemicals said that pledges equal to 10 million shares were invoked by bankers.

On 4 April, Mint reported that Kolkata-based industrialist Saroj Kumar Poddar, chairman of the Adventz Group of which Zuari Agro Chemicals Ltd is part, was keen to take over Mangalore Chemicals from Vijay Mallya’s UB Group because he believes the company is a “great strategic fit” for Adventz Group’s own farm inputs business.

Poddar’s firm owns a 10% stake in MCF acquired from UB Group’s lenders. It wasn’t immediately clear whether he would bid for more Mangalore Chemicals shares that are likely to be sold.

However, a UB Group spokesman said UB Group’s direct shareholding in Mangalore Chemicals is 21% without giving more details on the shareholding pattern.

“Besides this, the articles of association of Mangalore Chemicals gives UB Group the right to nominate three directors which gives board control as 50% of the board has to have independent directors and the maximum is 11. UB Group also enjoys the support of shareholders owning 17% of Mangalore Chemicals. Besides this, Zuari has publicly stated that they will not launch any hostile action,” the spokesperson said.

Over the past two weeks, the lenders sold 38.37 million shares in Kingfisher, bringing UBHL’s stake down to 21.36% from 24.44% earlier.

UBHL’s investment in the group’s crown jewel, United Spirits dropped to 15.73% from 17.75% after lenders invoked the pledge of 2.65 million United Spirits shares, according to a filing on Wednesday.

UB did not respond to queries on whether UBHL had pledged any more United Spirits shares with Kingfisher’s lenders.

Analysts earlier expressed concern that the sale of shares by lenders could hamper United Spirits’ deal with Diageo as Mallya may not have enough shares left to sell to Diageo.

The UK distiller agreed to buy 53.4% of United Spirits in November, including 27.4% stake from Mallya and the firm.

Diageo will follow up the purchase with an open offer to buy 26% of United Spirits from public shareholders at Rs.1,440 apiece—the price paid for the direct purchase.

The open offer began on Wednesday and will end on 26 April. However, many shareholders may not sell their shares as the United Spirits stock was trading significantly higher than the price offered by Diageo.

United Spirits stock closed up 1.16% at Rs.1813 on Wednesday on BSE. Mangalore Chemicals shares closed flat at Rs.41.30. Kingfisher Airlines stock closed at Rs.7.53 and UBHL at Rs.38

Default on commercial vehicle loans to hit banking sector

The stress on the banks’ asset quality could be seen with a lag because 
defaults are noted after commercial vehicle operators are not able to service
 loans for more than 90 days. Photo: Hemant Mishra/Mint
Live Mint : Krishna Merchant :Thu, Apr 11 2013. 12 04 PM IST

A good chunk of such loans is at risk because fleet operators are struggling to repay debt as economy stutters

Commercial vehicle loans are the new front in asset-quality problems for banks. Industry estimates put loans against commercial vehicles at Rs.60,000 crore.

 A good chunk of this is at risk because fleet operators are struggling to repay debt as the economy continues to stutter.

According to Crisil Research, the monthly collection ratio of a securitized pool of commercial vehicle loans amounting to Rs.17,700 crore fell to a four-year low of 94.4% in the December quarter from 96.2% a year ago. This trend is likely to be reflected on the non-rated portfolio of commercial vehicle loans in the country as well.

Freight demand has taken a hit due to lower growth in production of industrial goods. The tepid demand meant that truck operators were unable to pass on the increase in diesel prices. Truck rentals slipped 1.5-3% in March and were down around 8% for the just-ended fiscal year, according to data compiled by Indian Foundation of Transport Research and Training. That has put truckers’ debt servicing ability under a lot of pressure.

To be sure, credit to transport operators has slowed drastically—6% year-on-year growth in February compared with 16.9% a year ago—but they could soon start defaulting on loans if there is no recovery in sight.

The stress on the banks’ asset quality could be seen with a lag because defaults are noted after commercial vehicle operators are not able to service loans for more than 90 days. The proportion of loans that are not paid for more than three months have increased by 100 basis points, said Crisil Research. Defaults by transport operators could rise beyond six months, leading to a potential rise in non-performing assets, according to Crisil.

While banks can repossess and sell the vehicles of defaulters, it does lead to a certain amount of write-off since the resale value of trucks is declining. Although the banking sector’s overall exposure to commercial vehicles is around 1.5%, it will weigh on banks and non-banking financial companies that have high exposure to truck operators. Truck loans make up 7% of the total loans for HDFC Bank Ltdand ICICI Bank Ltd, according to estimates by Emkay Global Financial Services Ltd. For IndusInd Bank Ltd, it is 17% of total loans, 13% for Mahindra and Mahindra Financial Services Ltd and 33% for Shriram Transport Finance Co. Ltd, according to the brokerage.

Chidambaram talks tough on loan defaulters

Finance minister P. Chidambaram met chiefs of public sector banks and
 other financial institutions in New Delhi on Monday. Photo: Indranil Bhoumik/Mint
Live mint :Dineshunnikrishnan ::Remyanair :
Chidambaram asks banks to take all necessary steps to recover dues without hurting industry

New Delhi/Mumbai: The government on Monday sent a strong message to loan defaulters and served notice on promoters of debt-laden companies that they needed to infuse funds into their businesses to revive them and pay back the money owed to banks.

In a meeting with chiefs of public sector banks and other financial institutions in New Delhi on Monday, finance minister P. Chidambaram asked banks to take all necessary steps to recover dues without hurting industry.

“While we understand why NPAs (non-performing assets) have risen and why the restructuring of loans have increased, we also wish the banks take strong steps to recover their dues,” he said. “I think the promoters have a duty to bring in additional money and the companies have a duty to pay back the loans. We cannot have an affluent promoter and a sick company.”

Chidambaram added that steps taken by banks have started showing results with recoveries improving last month.

The finance minister’s warning comes at a time when the banking system has been getting squeezed by a sharp increase in NPAs, and lenders have been forced to undertake large-scale restructuring as economic growth is set to slow to a decade’s low of 5% in the current fiscal year.

The gross NPAs of 40 listed Indian banks increased to Rs.1.79 trillion from Rs.1.25 trillion in December, up 43.1% from the year-ago period. Debt recasts by banks are also on the rise at a faster pace as companies find themselves increasingly unable to repay their loans on time.

Until December, Indian banks have recast more than Rs.2 trillion under the so-called corporate debt restructuring (CDR) mechanism. Under CDR, banks typically stretch the repayment period to stressed companies, offer a moratorium, and reduce lending rates.

The total amount of such recasts may be about twice that as banks also extensively undertake bilateral restructuring outside CDR. Though there are no aggregate numbers available for this, such recasts are estimated to be nearly equal to the CDR figure.

Analysts expect at least 25-30% of such loans to turn bad, unlike about 10-15% that did so in the aftermath of the 2008 global financial crisis, when the Reserve Bank of India (RBI) sharply reversed the monetary stance by cutting rates to boost the economy. This time, however, RBI has been cautious in cutting rates due to high inflation. The central bank will announce its next monetary policy review on Tuesday.

Increases in NPAs and debt recasts impact banks’ profitability as they need to set aside more money for this in the form of provisions.

Mirroring the increasing pace of recasts, in the October-December quarter alone, banks restructuredRs.24,584 crore of loans, up from the Rs.19,544 crore in the previous quarter, to reach Rs.2.12 trillion.

In the current fiscal year so far, banks have recast Rs.62,085 crore under CDR, around 50% more than the whole of last year. Iron and steel is the single largest sector that has undergone CDR, constituting 23% as of December, followed by infrastructure (9.3%), textiles (8.24%), construction (7.3%) and telecom (5%).

Most airline loan recasts are outside CDR, as with grounded Kingfisher Airlines Ltd.

Chidambaram’s pointed remark about sick companies and affluent promoters may be significant with respect to the Vijay Mallya-promoted airline, which hasn’t flown since 1 October.

Kingfisher, which owes banks around Rs.7,000 crore, has been in talks with banks for further debt restructuring. But the banks, led by State Bank of India (SBI), are seeking to recover their money and want the promoters to infuse funds into the airline before a further loan recast is considered.

The bank is taking all steps to recover its loans provided to Kingfisher, SBI chairman Pratip Chaudhurisaid after the meeting.

“We are blazing all guns and taking all steps to recover (Kingfisher’s loans),” he said. “There is a core group. They are assessing what are securities, what can be disposed of quickly, then they are put on auction... That is how it goes.”

Kingfisher Airlines has pledged assets ranging from its brand to office furniture for Rs.7,500 crore against bank loans. The assets, including a villa in Goa, two helicopters, Kingfisher House in Mumbai and shares, have been shown as collateral for loans as of November 2011, minister of state for finance Namo Narain Meena told Parliament in December 2011.

Wilful defaulters

In the past, Indian banks have raised the alarm about a large number of companies misusing the restructuring facility even when there was no genuine need for a debt recast. To curb misuse, banks have been demanding a greater contribution from promoters to ensure that they continue to remain committed to the restructured assets.

RBI, too, has taken steps in this regard. In its draft guidelines on restructuring issued in January, the central bank stipulated that promoters’ contribution for such deals should be prescribed at a minimum of 15% of the diminution in fair value or 2% of the restructured debt, whichever is higher.

Banks can demand more than this from promoters, depending on the risk associated with the project and their ability to bring in a higher amount, RBI had said. This would be insisted upon in larger accounts, especially CDR cases. The central bank is currently working on the final guidelines.

Banks will take all steps under the law to recover funds from wilful defaulters, Rajiv Takru, secretary, financial services, said on Monday after the finance minister’s meeting with bank chiefs.

“(If) the promoter is holding onto money and the company is in trouble, won’t we expect that he puts some money into the company? Why should banks keep on restructuring and pump more and more money into the company,” he said. “There is security, there is collateral, there are personal guarantees. If the banks have to use these methods, they will use. After all, they are meant for a purpose.”

But the government sought to assure borrowers that the recovery drive will not impact those in distress.

“Banks are trying to make a distinction between wilful defaulters and people who are genuinely stressed and have genuine problems. Anybody who is genuinely stressed will get due consideration,” Takru said. “But anybody who is a wilful defaulter will need to repay. If the system needs to get tough with them, it will.”

Vaibhav Agarwal, a research analyst at Angel Broking Ltd, said, “The RBI restructuring guidelines stipulate that promoters need to bring in more contribution in case they want to restructure loans due to repayment difficulties. The statement (by Chidambaram) indicates possible efforts to streamline guidelines, which will allow banks to monetize promoters’ personal guarantees in the event of loan default.”

Separately, in an interview broadcast on Bloomberg TV India, the finance minister said concerns about retrospective taxation will be addressed once the tax dispute with Vodafone Group Plc is resolved. Once the case is settled, the government would be in a position to go back to Parliament to amend a provision on retrospective taxation, Chidambaram said in the interview.

Chidambaram downplayed concerns over a raft of transfer pricing cases, saying: “Merely because a few transfer pricing cases have arisen in a short spell of time, it doesn’t mean that we are doing anything extraordinary or anything that is unjust or harsh.”

PTI contributed to this story.

SBI wages war on wilful defaulters

SBI classified 274 companies as wilful defaulters in the year ended 31 March,
 after pushing 383 into that category in the previous fiscal. Photo: Hemant Mishra/Mint
Live Mint ; Dineshunnikrishnan :Mon, Apr 08 2013. 11 36 PM IST
Lender sharing names with RBI, Cibil; plans to publish photographs of the promoters of these firms in newspapers

Mumbai: State Bank of India (SBI), the nation’s largest lender, is clamping down on wilful defaulters—companies that have failed to repay loans even though they have the capacity to make payments.

SBI, which controls about 20% of the total assets of the country’sRs.75 trillion banking system, classified 274 companies as wilful defaulters in the year ended 31 March, after pushing 383 into that category in the previous fiscal. With this, 657 companies that have defaulted on loans worth Rs.5,700 crore have been branded wilful defaulters in the past two years. About 60% of the defaulters are mid-size corporate firms with an average loan size of Rs.60-70 crore.

SBI began compiling the wilful defaulters’ list in 1999. It has 1,124 borrowers on the list, with Rs.7,315 crore of loans.

Besides sharing the names of the wilful defaulters with the Reserve Bank of India (RBI) and Credit Information Bureau (India) Ltd (Cibil), SBI also plans to publish the photographs of the promoters of the companies in leading newspapers.

Once an entity is classified as a wilful defaulter, the company and its promoters are barred from raising money from other financial institutions. They are also prohibited from floating new ventures for five years.

A bank can classify a firm as a wilful defaulter when the repayment doesn’t happen even when the firm has the capacity to honour the obligations, when money is diverted or siphoned off or the firm disposes of the assets against which the loans were taken, according to RBI norms.

“People cannot take the system for a ride,” said A. Krishnakumar, managing director of SBI. “There will be no compromise in dealing with such parties.”

In March, the government had sent a strong message to the promoters of debt-laden companies that do not repay despite having the means. “We cannot have an affluent promoter and a sick company,” finance minister P. Chidambaram had said.

“This will be a wake-up call for the whole banking sector,” said Abhishek Kothari, an analyst at Violet Arch Securities Pvt. Ltd. “This will be a strong warning for companies who misuse bank money, and an inspiration to other banks to take bold steps on wilful defaulters.”

SBI is the hardest hit by loan defaults among Indian banks. Its gross non-performing assets (NPAs) rose to Rs.53,457 crore, or 5.3% of its loans. In percentage terms, Central Bank of India has higher bad loans (5.64%), but in absolute terms, its gross bad loans are Rs.8,938 crore.

Chronic bad debt

SBI’s stressed assets management (SAM) division, which handles high-value chronic NPAs, plans to steer the recovery process more aggressively, said Soundara Kumar, deputy managing director at SBI. Kumar heads the division, consisting of 15 SAM branches.

Bad loans from SBI’s different business units are moved to SAM when the asset quality worsens.

The quantum of bad debt moved to the SAM division rose to Rs.20,000 crore in fiscal 2013 from Rs.17,000 crore in the previous year. Of the Rs.20,000 crore, about Rs.8,000 crore has been written off.

Aided by the recent amendment in the debt recovery Act, SBI has started bidding in bad assets auctions to scuttle any attempts of cartelization, said Kumar. The bank itself makes bids for such assets to keep fake buyers at bay who cartelize to keep the price low. In recent months, SBI has conducted two such auctions.

If an auction process fails twice, the bank sells such assets through a private treaty, after identifying a buyer.

“We are actively focusing on monitoring to ensure that recovery of assets is done in a time-bound manner,” Kumar said. “The bank is willing to settle such cases through a one-time payment, provided there is no haircut (sacrifice).”

SBI is also encouraging stake sales in companies that have defaulted in clearing bank dues, but are functional. In one such case, Uttam Galva Steels Ltd bought a stake in Lloyds Steel Industries Ltd.

To cut bad debt, SBI plans to sell Rs.150-200 crore of loans to asset reconstruction companies in the current fiscal if it gets the right price, Kumar said. This will be the first time SBI is selling bad loans in the past three years.

Since December, the bank has set up teams of senior officers who have been contacting borrowers for the recovery of bad loans. “About 700-1,000 officers across the country are deployed in such teams. The results are positive as we have seen substantial recovery in the last few months,” Krishnakumar said.

Indian banks are battling bad debt on their books in the face of declining economic growth, projected to grow at the slowest pace in a decade at 5% in the year ended 31 March, clearance delays and high interest rates, which have hampered the ability of borrowers to repay debt.

Bad loans eat into the profits of banks as they need to set aside money for such assets.

Typically, banks try to restructure loans once signs of stress emerge in a high-value loan. This is because banks need to provide a lesser amount for restructured advances compared with what they need to mark for bad loans.

The banking system has so far restructured assets worth about Rs.4 trillion. Analysts expect at least 25-30% of restructured loans to turn bad as the banking regulator’s ability to cut the interest rate is limited due to high inflation and widening current account deficit.

Since April, the Indian central bank has cut its repo rate, at which it lends short-term funds to banks, thrice by a total 100 basis points. A basis point in one-hundredth of a percentage point.

“Both the NPAs and restructured loans are likely to continue in the next few quarters as the overall slowdown persists. But if banks take a cue from SBI and boost efforts to recover bad debts, that can be a big positive for the entire sector,” said Kothari of Violet Arch.

(This story has been modified to reflect the correct designation of Soundara Kumar.)

Kingfisher dues: United Bank of India files winding-up petition

B L :NEW DELHI, APRIL 1: 2013

 

In what is being seen as more trouble for the grounded Kingfisher Airlines, one of its creditors — United Bank of India — has filed a winding-up petition against United Breweries Holdings Ltd (UBHL). The petition is pending admission before the Karnataka High Court, it is learnt.

UBHL, which is the holding company of the UB Group, was the guarantor for the loans given by United Bank of India to Kingfisher Airlines (KFA).

United Bank is the first lender in the 17-bank consortium to seek winding up of the guarantor company (UBHL), after KFA defaulted. In comparison, the consortium headed by State Bank of India is looking to proceed directly against KFA for recovery of the dues, estimated at about Rs 7,000 crore.

United Bank of India has an exposure of close to Rs 400 crore to KFA, which includes pre-delivery payment (PDP) financing for aircraft as well as working capital financing.

As UBHL was not able to meet its liabilities arising from non-payment of dues by KFA, United Bank has moved the Karnataka High Court with a winding up petition, sources in the banking industry said.

If the Karnataka High Court were to admit the winding-up petition, then it could frustrate the revival attempts of the grounded airline, say bankers.

This is because the Director-General of Civil Aviation is unlikely to renew KFA’s licence unless the airline is able to produce a no-objection certificate from lenders such as banks and tax authorities. But, with a winding-up petition pending before a High Court, no banker is likely to give a no-objection certificate for the airline to restart operations, say some economy watchers.

There is also an opposite view that any majority support from bankers (on repayment of dues to them) could still tilt the scale in favour of a revival of the airline.

Vijay Mallya moves court against lenders

Mallya’s petition signals that the process of loan recovery could well be fraught with prolonged legal battles for the lenders to the airline. Photo: Mint

 live Mint :P.R. Sanjai :Tue, Apr 02 2013. 12 40 AM IST

Move aimed to prevent Kingfisher airlines creditors from selling shares in United Spirits, Mangalore Chemicals and Fertilizers

Mumbai: Vijay Mallya’s UB Group, promoter of Kingfisher Airlines Ltd, petitioned the Bombay high court last week to prevent creditors of the grounded airline from selling shares in group companies United Spirits Ltd (USL) and Mangalore Chemicals and Fertilizers Ltd (MCF) that it has pledged as loan collateral.

The petition signals that the process of loan recovery could well be fraught with prolonged legal battles for the lenders to the airline. The petition will come up for hearing on Tuesday.

A consortium of 14 banks with combined exposure of Rs.7,000 crore to Kingfisher Airlines has started selling shares in USL and MCF that Mallya offered as collateral when the airline’s debt was restructured in 2011, according to two bankers who declined to be identified.

“We have started selling the shares. The group has moved court, but we are confident that we will be able to recover part of our money through the sale,” one of the bankers said.

Kingfisher Airlines has been grounded since 1 October, first because of staff protests over unpaid salaries and thereafter because of regulatory issues. Its flying licence expired on 31 December and a revival plan prepared by the airline to start limited operations this summer failed to convince the aviation regulator.

The Directorate General of Civil Aviation (DGCA) would like to see no-objection certificates from airport operators, aircraft leasing companies, certificates of support from maintenance firms and spare parts vendors of Airbus aircraft and salaries paid before the airline can fly again, Mint reported on 16 January, citing a DGCA official who didn’t want to be named.

The move by UB Group to petition the high court indicates the legal uncertainties that creditors of the airline are likely to encounter in the process of recovering the money they are owed.

Mallya did not reply to a query seeking a clarification on the development, but a senior UB Group executive confirmed that a petition has been filed.

For their part, the lenders are preparing to file a petition in a debt recovery tribunal (DRT) against the airline under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act after recalling their loans.

This could happen before the end of this week. The Act allows secured creditors to move a DRT to recover their money.

Recovery cases at a DRT are cleared relatively faster than conventional legal means, but a borrower can move a higher court against decisions by a tribunal.

State Bank of India (SBI), the leader of the creditors’ consortium, has the maximum exposure at Rs.1,600 crore to Kingfisher, followed by Punjab National Bank, or PNB (Rs.800 crore); IDBI Bank Ltd (Rs.800 crore);Bank of India, or BoI (Rs.650 crore); Bank of Baroda, or BoB (Rs.550 crore); United Bank of India, or UBI(Rs.430 crore); Central Bank of India (Rs.410 crore); UCO Bank Ltd (Rs.320 crore); Corporation Bank (Rs.310 crore); State Bank of Mysore, an SBI associate bank, (Rs.150 crore); Indian Overseas Bank (Rs.140 crore);Federal Bank Ltd (Rs.90 crore); Punjab and Sind Bank (Rs.60 crore) and Axis Bank Ltd (Rs.50 crore).

Overall, their exposure is Rs.6,360 crore, with unpaid interest taking it up to Rs.7,000 crore .

Apart from shares in USL and MCF, the lenders hold two UB Group properties in Mumbai and Goa and two helicopters, besides the Kingfisher Airline brand as collateral in addition to a personal guarantee from Mallya.

“We are confident of recovering about one-fourth of our exposure through share sale and sale of properties and helicopters,” said the first banker cited above.

On Monday, USL shares lost 0.45% to close at Rs.1,889.45 each while MCF’s shares rose 13.52% to end at Rs.32.75 on BSE.

Lenders have turned up the heat on Mallya after Diageo Plc of the UK in November agreed to buy a 53.4% stake in USL for Rs.11,170 crore, including an open offer to buy 26% from public shareholders.

Finance minister P. Chidambaram recently called upon banks to aggressively push for the recovery of bad assets and chase the “affluent promoters” of “sick companies”.

There are other lenders to Kingfisher outside the consortium. They are Srei Infrastructure Finance Ltd(Rs.430 crore), Jammu and Kashmir Bank Ltd (Rs.80 crore) and Oriental Bank of Commerce (Rs.50 crore). A debt fund operated by Kolkata-based Srei Infrastructure bought ICICI Bank Ltd’s exposure to the airline in July 2012.

The non-banking financial company and Jammu and Kashmir Bank have shares of USL and McDowell Holdings Ltd as collateral.

Another senior banker, requesting anonymity, said the consortium had empowered a core group formed to recover debt to take legal actions against the UB Group. The members of the core group are SBI, PNB, BoB, BoI, IDBI Bank and UBI.

According to consulting firm Capa, Kingfisher Airlines’ suspension of operations has had a knock-on impact on the global leasing and financing sector, highlighting some of the challenges facing aircraft financiers and lessors in the Indian market, besides raising concerns about regulatory safeguards with regard to international investment in the country.

“The continued delays by the Indian government to de-register Kingfisher-operated aircraft since it suspended operations in October 2012 is also expected to hurt other, still-operational, Indian carriers while also creating the impression that India is not adhering to the Cape Town Convention, of which it is a signatory,” Capa said in a report.

The Cape Town Convention is an international treaty aimed at standardizing transactions involving movable property. In this case, India will have to facilitate smooth transfer of aircraft to owners if an airline defaults in lease rentals.