Business Today

No Golden Parachute

K.R. Balasubramanyam        Print Edition: March 17, 2013

He owns one of the world's most expensive yachts, a Formula One team and one of India's biggest premier league cricket teams. The net worth of liquor baron Vijay Mallya and his family has almost doubled to more than Rs 8,000 crore since UK drinks giant Diageo Plc picked up a controlling stake in United Spirits Ltd last November.

But the man dubbed the "King of Good Times" is still having a hard time bailing out his grounded Kingfisher Airlines.

Business Today's research shows the net worth of Mallya and his family has leapt by Rs 3,500 crore in the past year to Rs 8,296 crore, while the Kingfisher Airlines stock has plunged to about Rs 11 from Rs 30 last year, wiping out almost two-thirds of investor wealth.

The stock of the UB Group's flagship company, United Spirits Ltd, has jumped to about Rs 1,800 from Rs 685 in February last year, pushing up the value of shares held by Mallya, his family and his investment arms by Rs 2,200 crore. The share price of another UB company, United Breweries, has also risen above Rs 680 from about Rs 410 in February last year.

This increased the value of shares held by Mallya, his family and his investment firms by Rs 1,400 crore.

Mallya has been talking to investors for months to sell a stake in the debt-ridden Kingfisher and raise funds to revive the airline which has not flown since October. But so far, he has made little headway, and the airline is nowhere close to taking off again any time soon.

Kingfisher is saddled with a debt of more than Rs 13,000 crore and lenders are now moving to recover their loans. The core group of a consortium of 17 banks led by State Bank of India (SBI) has decided to recall loans worth over Rs 7,000 crore because the airline's promoters have so far not infused fresh funds.

The loan recall is a demand for immediate repayment or else the lenders can take control of any Kingfisher assets they hold as collateral.

"We will quickly proceed on the recovery process," says SBI Deputy Managing Director Shyamal Acharya.

Kingfisher has pledged several assets as collateral against the loans. They include the Kingfisher brand, prime properties in Mumbai and Goa, and shares of UB Group companies United Spirits and Mangalore Chemicals & Fertilizers. National Stock Exchange filings show 90 per cent of the promoter's 36 per cent holding were pledged as of December-end.

But experts say bankers and creditors such as airports and oil companies may have a tough time recovering even part of their dues. The banks have written off the airline brand which audit and consultancy firm Grant Thornton valued at Rs 3,000 crore in 2010 because they think it has little value under the circumstances.

Grant Thorton's valuation was based on the assumption that the airline would turn around with an infusion of funds. "Banks recall loans if a business ceases to be a going concern and stops operations altogether," says former Federal Bank Chairman M. Venugopalan.

FULL COVERAGE:Kingfisher crisis

The lenders have threatened to sell the shares of United Spirits and Mangalore Chemicals & Fertilizers put up as collateral. But one banker says selling the shares in the open market is not a practical solution as it would drive down the stock price.

Acharya says the consortium owns shares worth about Rs 500 crore in the two companies. UB Group officials are talking to banks about transferring the shares to Diageo through off-market transactions.

"The banks explicitly support the transaction with Diageo and will work with us in finding an orderly method of disposal of some of the pledged shares to Diageo if appropriate," says a UB spokesperson. Last month, the management paid a month's salary to some employees, but that may not be enough. The Airports Authority of India has taken steps to recover its dues from the troubled carrier. It has seized control of some planes parked at its airports and refused to allow lessors to retrieve them until the carrier pays airport dues of Rs 390 crore. "The banks and the government have done all they could, but there are no positive signs visible from the Kingfisher management to restart the airline," says Minister of State for Civil Aviation K.C. Venugopal.

Last month, the main stakeholder in Kingfisher, United Breweries (Holdings) Ltd, sought shareholder approval to more than double its loan limit to the airline to Rs 750 crore and slash investments to Rs 750 crore from Rs 1,200 crore. While markets gave the thumbs-up to the proposal, analysts say the move suggests the promoters prefer supporting the airline with debt rather than equity because they have little faith in its profitability. "If and when the airline goes under, UB (Holdings) too will cave in under the weight of the airline debt," says Kishore Ostwal, head of CNI Research in Mumbai.

Some media reports said Mallya may refer the ailing airline to the Board for Industrial and Financial Reconstruction (BIFR), the government agency charged with turning around sick companies. Kingfisher is saddled with accumulated losses of about Rs 10,000 crore. But BIFR officials say the board does not consider non-industrial companies for rehabilitation. Either way, Kingfisher's turbulent patch is far from over.

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