Aneesh Phadnis | BS :Mumbai
December 7, 2013 Last Updated at 00:42 IST
Mallya, who sold off his United Spirits to Diageo for $1 billion
early this year, has not used this money to repay bank loans
early this year, has not used this money to repay bank loans
About a year after Kingfisher Airlines shut shop, the only
one still confident of a revival of the airline is Chairman
Vijay Mallya. Just two months ago, the flamboyant promoter
of Kingfisher Airlines and the UB group announced he was
in talks with an investor to sell the airline. He had given a
deadline of 90 days for the sale.
But as days pass, few share Mallya’s optimism. Slowly,
Indian banks are realising they aren’t left with much, in terms
of their loans to the airline. Mallya, who sold 25 per cent in
his United Spirits to Diageo for $1 billion early this year,
didn’t use this money to repay the loans. The 14 banks,
led by State Bank of India (SBI), which lent Rs 6,500 crore
to the airline, are now involved in litigation over the money
, as Mallya has sued them in multiple courts. Bankers say
they started the recovery process in March 2013, as the
company’s dues had exceeded Rs 2,400 crore.
Not just banks, investors and employees of Kingfisher
Airlines are also going home empty-handed. The airline’s
stock has seen a steady decline — from its peak market
value of Rs 3,888 crore in 2007, the company’s value has
fallen to Rs 407 crore. The stock is being quoted at about
Rs 5. The airline’s employees haven’t received salaries for
the last year-and-a-half.
Kingfisher Airlines took off well in 2005, even carving a
niche for itself. But a Rs 550-crore deal in 2007 to buy
out Gopinath’s Deccan Airways, along with other sundry
mistakes, pulled it down. Today, Mallya owes money to
banks, employees, tax officials, caterers, aircraft leasing
companies, fuel supplier Hindustan Petroleum Corporation
and to taxi operators, too.
Kingfisher Airlines did not respond to an email query
seeking comment.
The entire aviation industry has seen difficult times. “The reason
for airlines making losses has been a high increase in fuel cost
through the last couple of years, coupled with weakening of
the rupee. Further, interest costs have also increased due to
the purchase of new aircraft. The increased costs due to all
these factors cannot be directly passed on to customers in
view of the price war among airlines,” says M P Chhajed,
a city-based auditor.
Banks, meanwhile, started selling shares of United Spirits and
Mangalore Chemicals and Fertilisers, given as collateral
against the loan, and netted about Rs 600 crore. That is
all banks have secured so far; their recovery drive has been
stymied by the airline challenging all claims against it. In March
this year, UB group moved the Bombay High Court against the
sale of shares, but secured no interim relief. In May, the
lenders recalled the entire loan of about Rs 6,000 crore,
asking Mallya to return the entire amount at once.
Through the last eight months, UB group and the lenders have
been at loggerheads over the possession of Kingfisher House,
the airline’s office here, and Mallya’s villa in Goa. Both properties
were given as security against the loan. To recover the dues,
the lenders have also filed applications in the Debt Recovery
Tribunal (DRT) Bangalore. “The presiding officer of DRT
Bangalore has heard the banks, but Kingfisher's defence
against the interim applications is yet to be heard. In the
interim application, banks have sought a declaration of
assets, injunction against delineation of properties, attachment
of properties and such other relief,” said a banker privy
to the development.
“We will not be able to generate more than Rs 1,000 crore through
the sale of shares and from the Mumbai and Goa properties,”
the banker said. Therefore, the case before DRT is crucial,
as an order will allow lenders to lay claim even on Mallya’s
and UB group’s personal and non-pledged assets. However,
the tribunal was overburdened and a final recovery order in
the Kingfisher case might take years, lawyers say.
The Karnataka HC, while hearing a winding-up petition against the
airline, asked banks to maintain status quo, with regard to the
company’s Mumbai office, till December 6, as the airline said
it was in talks with investors for a revival. A local court in Goa
, too, stayed banks’ attempts to take possession of Mallya’s
villa in Goa. Two days ago, banks secured a restraint order
from DRT against UB group company Kingfisher Finvest,
restraining it from transferring any property or dealing with
the proceeds from the sale of its shares.
If this year has been marked by acrimony, 2010 was a period
of bonhomie between the airline and its lenders. In a controversial
decision in November 2010, public sector banks, failing to read
the signs of a financially sick airline, restructured Rs 7,650 crore
of debt, converting a portion of it into preferential shares.
The banks announced a two-year moratorium on the repayment,
reduced interest and additional funding. After the restructuring,
the airline’s total debt fell to Rs 6,300 crore.
To worsen matters, in March 2011, Rs 750 crore of preferential
shares issued to banks was converted into equity shares at Rs 64.48
a share, a premium of 61 per cent. During that quarter, banks and
other financial institutions held 23 per cent stake in the airline
. A year later, when the lock-in period for shareholding ended,
banks started selling shares at a loss, reducing their holding
to 13 per cent.
The banks had hoped the debt restructuring would provide a
breather to the airline and allow it to restructure its operations.
On its part, the airline announced plans to reduce debt and make
changes in its business model. Till then, the airline ran two
service models (the full-service brand and the no-frills service
, introduced after the airline bought Air Deccan).
The airline estimated the reduction in finance costs and tweaking
the business model would lead to gains of Rs 2,190 crore.
It firmed up plans to hive off its ATR operations, loyalty programme
and engineering unit into separate companies, none of which
materialised. Despite a generous debt recast, the airline was
unable to generate profits. In fact, it didn’t record profits in its
seven years of operations.
By March-end 2013, the airline’s accumulated losses stood
at a staggering Rs 16,000 crore.
By December 2011, about a year after the debt restructuring,
SBI said Kingfisher loans had turned bad. The bank had
exposure of Rs 1,500 crore to the airline. Soon, other
banks declared Kingfisher loans non-performing assets (NPAs).
Following this, the airline made a pitch for additional loans
, but these were denied. Then, the airline approached smaller
banks in the consortium, banks that hadn’t categorised the
loans as NPAs. A series of meetings between banks and
Kingfisher Airline executives followed. Mallya then made a
few presentations, outlining revival plans for the airline.
In October 2012, the airline stopped operations, after
engineers stopped work due to non-payment of salaries.
The Directorate General of Civil Aviation suspended the airline
’s operating permit. As for the sale of the airline, Mallya remains optimistic.
GROUNDED
* Nov 2010: Banks restructure Rs 7,500 crore loan.
A portion of the loan was converted into equity, fresh funding
granted and repayment term extended
* January-March 2012: Banks begin to declare KFA loan
s as NPA after the airline fails to service interest
* October 2012: Kingfisher shuts operations
* March 2013: Lenders sell pledged shares of United Spirits
and Mangalore Chemicals and Fertilisers Ltd
* April 2013: Kingfisher moves Bombay High Court against
sale of shares, does not secure relief
* May 2013: Lenders recall Kingfisher's entire
Rs 6,000-crore loan
one still confident of a revival of the airline is Chairman
Vijay Mallya. Just two months ago, the flamboyant promoter
of Kingfisher Airlines and the UB group announced he was
in talks with an investor to sell the airline. He had given a
deadline of 90 days for the sale.
But as days pass, few share Mallya’s optimism. Slowly,
Indian banks are realising they aren’t left with much, in terms
of their loans to the airline. Mallya, who sold 25 per cent in
his United Spirits to Diageo for $1 billion early this year,
didn’t use this money to repay the loans. The 14 banks,
led by State Bank of India (SBI), which lent Rs 6,500 crore
to the airline, are now involved in litigation over the money
, as Mallya has sued them in multiple courts. Bankers say
they started the recovery process in March 2013, as the
company’s dues had exceeded Rs 2,400 crore.
Not just banks, investors and employees of Kingfisher
Airlines are also going home empty-handed. The airline’s
stock has seen a steady decline — from its peak market
value of Rs 3,888 crore in 2007, the company’s value has
fallen to Rs 407 crore. The stock is being quoted at about
Rs 5. The airline’s employees haven’t received salaries for
the last year-and-a-half.
Kingfisher Airlines took off well in 2005, even carving a
niche for itself. But a Rs 550-crore deal in 2007 to buy
out Gopinath’s Deccan Airways, along with other sundry
mistakes, pulled it down. Today, Mallya owes money to
banks, employees, tax officials, caterers, aircraft leasing
companies, fuel supplier Hindustan Petroleum Corporation
and to taxi operators, too.
Kingfisher Airlines did not respond to an email query
seeking comment.
The entire aviation industry has seen difficult times. “The reason
for airlines making losses has been a high increase in fuel cost
through the last couple of years, coupled with weakening of
the rupee. Further, interest costs have also increased due to
the purchase of new aircraft. The increased costs due to all
these factors cannot be directly passed on to customers in
view of the price war among airlines,” says M P Chhajed,
a city-based auditor.
Banks, meanwhile, started selling shares of United Spirits and
Mangalore Chemicals and Fertilisers, given as collateral
against the loan, and netted about Rs 600 crore. That is
all banks have secured so far; their recovery drive has been
stymied by the airline challenging all claims against it. In March
this year, UB group moved the Bombay High Court against the
sale of shares, but secured no interim relief. In May, the
lenders recalled the entire loan of about Rs 6,000 crore,
asking Mallya to return the entire amount at once.
Through the last eight months, UB group and the lenders have
been at loggerheads over the possession of Kingfisher House,
the airline’s office here, and Mallya’s villa in Goa. Both properties
were given as security against the loan. To recover the dues,
the lenders have also filed applications in the Debt Recovery
Tribunal (DRT) Bangalore. “The presiding officer of DRT
Bangalore has heard the banks, but Kingfisher's defence
against the interim applications is yet to be heard. In the
interim application, banks have sought a declaration of
assets, injunction against delineation of properties, attachment
of properties and such other relief,” said a banker privy
to the development.
“We will not be able to generate more than Rs 1,000 crore through
the sale of shares and from the Mumbai and Goa properties,”
the banker said. Therefore, the case before DRT is crucial,
as an order will allow lenders to lay claim even on Mallya’s
and UB group’s personal and non-pledged assets. However,
the tribunal was overburdened and a final recovery order in
the Kingfisher case might take years, lawyers say.
The Karnataka HC, while hearing a winding-up petition against the
airline, asked banks to maintain status quo, with regard to the
company’s Mumbai office, till December 6, as the airline said
it was in talks with investors for a revival. A local court in Goa
, too, stayed banks’ attempts to take possession of Mallya’s
villa in Goa. Two days ago, banks secured a restraint order
from DRT against UB group company Kingfisher Finvest,
restraining it from transferring any property or dealing with
the proceeds from the sale of its shares.
If this year has been marked by acrimony, 2010 was a period
of bonhomie between the airline and its lenders. In a controversial
decision in November 2010, public sector banks, failing to read
the signs of a financially sick airline, restructured Rs 7,650 crore
of debt, converting a portion of it into preferential shares.
The banks announced a two-year moratorium on the repayment,
reduced interest and additional funding. After the restructuring,
the airline’s total debt fell to Rs 6,300 crore.
To worsen matters, in March 2011, Rs 750 crore of preferential
shares issued to banks was converted into equity shares at Rs 64.48
a share, a premium of 61 per cent. During that quarter, banks and
other financial institutions held 23 per cent stake in the airline
. A year later, when the lock-in period for shareholding ended,
banks started selling shares at a loss, reducing their holding
to 13 per cent.
The banks had hoped the debt restructuring would provide a
breather to the airline and allow it to restructure its operations.
On its part, the airline announced plans to reduce debt and make
changes in its business model. Till then, the airline ran two
service models (the full-service brand and the no-frills service
, introduced after the airline bought Air Deccan).
The airline estimated the reduction in finance costs and tweaking
the business model would lead to gains of Rs 2,190 crore.
It firmed up plans to hive off its ATR operations, loyalty programme
and engineering unit into separate companies, none of which
materialised. Despite a generous debt recast, the airline was
unable to generate profits. In fact, it didn’t record profits in its
seven years of operations.
By March-end 2013, the airline’s accumulated losses stood
at a staggering Rs 16,000 crore.
By December 2011, about a year after the debt restructuring,
SBI said Kingfisher loans had turned bad. The bank had
exposure of Rs 1,500 crore to the airline. Soon, other
banks declared Kingfisher loans non-performing assets (NPAs).
Following this, the airline made a pitch for additional loans
, but these were denied. Then, the airline approached smaller
banks in the consortium, banks that hadn’t categorised the
loans as NPAs. A series of meetings between banks and
Kingfisher Airline executives followed. Mallya then made a
few presentations, outlining revival plans for the airline.
In October 2012, the airline stopped operations, after
engineers stopped work due to non-payment of salaries.
The Directorate General of Civil Aviation suspended the airline
’s operating permit. As for the sale of the airline, Mallya remains optimistic.
GROUNDED
* Nov 2010: Banks restructure Rs 7,500 crore loan.
A portion of the loan was converted into equity, fresh funding
granted and repayment term extended
* January-March 2012: Banks begin to declare KFA loan
s as NPA after the airline fails to service interest
* October 2012: Kingfisher shuts operations
* March 2013: Lenders sell pledged shares of United Spirits
and Mangalore Chemicals and Fertilisers Ltd
* April 2013: Kingfisher moves Bombay High Court against
sale of shares, does not secure relief
* May 2013: Lenders recall Kingfisher's entire
Rs 6,000-crore loan
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