Kingfisher Air seeks freeze on loan repayment

Written by Rajat Guha | Rajat Guha | Nirbhay Kumar | New Delhi | Updated: Jul 28 2010, 09:39am hrs
The King of Good Times has fallen on bad times. Weighed down by Rs 6,000-crore debt it finds tough to service due to poor capacity utilisation and heavy losses, the Vijay Mallya-led Kingfisher Airlines has sought a two-year moratorium on all its loan repayments. The airline has also decided to convert Rs 395-crore worth unsecured loans and preference capital from the UB group into equity during this financial year.

Kingfisher Airlines has mandated SBI Caps, the merchant banking arm of the countrys largest bank State Bank of India (SBI), to restructure its finances.

Disclosing this in a presentation to investors last week, UB group chairman Vijay Mallya said the airline would also raise nearly $200 million through a global depository receipts issue this fiscal. Kingfisher Airlines has mandated Citibank, Morgan Stanley, CLSA and UBS for the fund-raising exercise, which is expected to be completed in two months.

According to analysts, the moratorium or a loan restructuringby lowering interest rates or extending the time for repaymentwill help Kingfisher only if it is done outside the corporate debt restructuring (CDR) mechanism. This is because the CDR mechanism is resorted to only when the loans turn bad. In such cases, it becomes difficult for companies to raise funds and banks must classify such loans as non-performing assets.

Kingfisher has borrowed from nearly 15 scheduled commercial banks including State Bank of India, Punjab National Bank and Corporation Bank. The bulk of its Rs 6,000-crore debt as on March 31, 2010 is long-term loans, while the rest is short-term. The debt burden, however, is down from Rs 7,413 crore on December 31, 2009.

When contacted, a Kingfisher spokesperson said: We want to maintain uniformity in loan repayment tenure.

The financial position of Kingfisher Airlines as well as other UB group companies is quite precarious, with promoters pledging majority of their equity. The Mallya group through its entities holds 66.28% stake in Kingfisher Airlines, majority of which is pledged.

As earlier reported by FE, in its latest regulatory filing, United Spirits, the groups flagship company, said the promoters had pledged 86.55% of equity with various banks and financial institutions. Domestic airlines, emerging from the downturn of the last two years, have recently posted double-digit growth in traffic. While Jet Airways and SpiceJet have reported profit in the last few quarters, Kingfisher is yet to be out of the woods.

In the past, Kingfisher Airlines had accumulated dues of oil marketing companies and airport operators and had failed to keep payment commitments. The financial health of the airline worsened to the extent that its cheque to a private bank bounced last year, documents available with FE show. Hindustan Petroleum Corporation (HPCL), the lead fuel supplier to Kingfisher Airlines, has threatened to put the airline on cash-and-carry segment forcing it to make upfront payment for fuel.

Kingfisher, which has a market share of 21%, has managed to reduce fleet size by 20% in domestic and 6% in international routes.

Kingfisher Airlines reported a net loss of Rs 187 crore during April-June, against a net loss of Rs 237 crore during the same period last fiscal. However, its revenue increased to Rs 1,641 crore from Rs 1,273 crore.