SBI to bail out Kingfisher Airlines with Rs 1,500 cr loan

SBI to bail out Kingfisher Airlines with Rs 1,500 cr loan

The income tax department also softens its stand and defreezes the airline's bank accounts as part of the bailout package for the loss-making carrier.

The government-owned State Bank of India (SBI) threw a Rs 1,500-crore lifeline on Tuesday to keep billionaire Vijay Mallya 's sinking Kingfisher Airlines afloat in a move that amounts to throwing good money after bad.

The income tax department also softened its stand and unfroze the airline's bank accounts as part of the bailout package for the loss-making carrier. When contacted for his comments on the rescue act, SBI chairman Pratip Chaudhuri said: "I cannot disclose anything owing to client confidentiality. I can neither say yes nor no."

According to sources, SBI's first tranche of Rs 700 crore will come as short-term working capital to meet the loss-making airline's immediate requirements for paying salaries, tax dues and provident fund payments as well as clearing outstanding arrears of vendors and oil marketing companies.

Additionally, Rs 500 crore will be provided as bank guarantees. Loans worth Rs 200 crore, coming up for repayment shortly, will be rolled over. Further, Rs 150 crore will be provided as guarantees to the income tax department. The mechanics are unclear whether the latest SBI bailout includes any equity shareholding transfer by Kingfisher.

For his part, UB Group president and CFO Ravi Nedungadi confirmed the development to Mail Today saying: "Yes, we have an in principle approval from the SBI but I can't give you the numbers."

SBI's exposure to Kingfisher Airlines is now Rs 1,457 crore, plus Rs 182 crore (equity), plus Rs 1,500 crore (fresh bailout). This adds up to over Rs 3,100 crore. Sources said SBI, which already has an over Rs 1,457.78 crore exposure in KFA, was the lone bank chosen to bail out the turbulence-hit private carrier. SBI also picked up 5.67 per cent of KFA's shares, amounting to Rs182 crore at Rs 64.28 each. These are worth a mere Rs 76 crore at Tuesday's closing price.

The 19-bank consortium that has exposure in KFA had held an inconclusive meeting on Friday over the controversial issue of giving more loans to the airline. The consortium is led by SBI and includes other public sector banks such as Punjab National Bank and three private entities, including ICICI Bank.

The problem is that the earlier loans to KFA have been classified as non-performing assets (NPAs) and normally banks do not lend any money to such companies.

Desperately seeking working capital, Mallya has been pitching for a bailout from the government along the lines that the latter is offering to ailing national carrier Air India. Banks had told Mallya to raise fresh equity for another debt restructuring. He was also asked to reduce KFA's debt burden of over Rs 7,057.08 crore. Interestingly, Mallya's six listed firms have a total debt of Rs13,947 crore (as of March 31, 2011) out of which as much as half is contributed by his ailing and bleeding airline.

On February 21 this year, the market capitalisation of his listed entities stood at Rs 23,201 crore and his personal net worth worked out to Rs 8,396 crore. While he has infused as much as Rs 980 crore of his personal money in KFA over 12 months in 2011, he continues to look for a government handout.

However, the dilemma before banks is that they are both lenders and equity holders in Kingfisher, and claim they cannot let it go down. The consortium of banks has a total exposure of Rs 6,400 crore to Kingfisher. Several banks, including SBI and ICICI Bank, bought a 23.21 per cent stake in KFA in April 2011. SBI picked up a 5.67 per cent stake, while ICICI took 5.3 per cent.

Conversion of debt into equity, termed normal by bankers, was the last element of the debt recast undertaken by KFA's lenders. The restructuring included a reduction in interest rates, where no special dispensation was provided by the Reserve Bank of India.

The government has decided to free the airline's bank accounts. An official of the Central Board of Direct Taxes said the bank accounts of Kingfisher would be unfrozen on Wednesday after its makes an interim payment against its tax dues.

The I-T department had recently frozen Kingfisher's accounts for the second time in two months after the airline did not pay tax arrears to the tune of Rs60 crore. In December 2011, the taxmen had frozen Kingfisher's accounts when its dues had piled up to Rs80 crore but later lifted the freeze after it cleared a portion of the arrears.

In another breather, the Directorate General of Civil Aviation (DGCA) set a 24-hour deadline for the carrier to come up with a realistic flight schedule. DGCA chief E.K. Bharat Bhushan told the media after the regulator quizzed Kingfisher CEO Sanjay Aggarwal and other top officials that any immediate punitive action had been ruled out to avert further difficulties to fliers even as the carrier scrapped 40 more flights.

Kingfisher also announced on Tuesday that it had cut its debt by Rs200 crore by conversion of optionally convertible debentures (OCDs) into equity shares of the company. Soon after this announcement, Kingfisher shares - which had been hammered down 20 per cent at the BSE in the morning - bounced back to gain 0.75 per cent over the previous day to close at Rs26.80.

This move has enhanced the equity capital base of the company by around Rs80 crore as well as reduced some portion of its mounting debt burden. Three entities - LKP Securities Ltd, Redect Consultancy Pvt Ltd and Star Investment Pvt Ltd - which were allotted OCDs worth over Rs709 crore in January last year, have converted part of their OCDs into equity at a price of Rs25.01 per share, KFA informed the stock exchange.

Courtesy: Mail Today