The Central Bureau of Investigation (CBI) has raised concerns over the high valuation of the Kingfisher Airlines brand by its lenders and questioned them on why they used it as collateral while extending loans to the Vijay Mallya-promoted company.
“Lending on the brand value of Kingfisher Airlines is a major concern. We have questioned the banks. It is basically an intangible asset. We are digging into the issue,” said CBI sources.
In its 2012-13 annual report, Kingfisher Airlines had said that at its peak it was the largest airline in India, with a five-star rating from Skytrax. A brand valuation by consultancy firm, Grant Thornton put its value at $550 million (Rs 3,000 crore) on resumption of operations. The airline’s brand had been registered separately from the Kingfisher beer trademark.
The airlines brand name was pledged to 14 lenders, including State Bank of India (SBI), IDBI Bank, Punjab National Bank, Bank of India and Bank of Baroda under a debt recast agreement in which loans valuing Rs 6,500 crore were restructured and converted into equity.
According to a banker, who did not wish to be named, it is not common for banks to accept brands as collateral. “None of the banks in India have capitalised brand value in their balance sheets. It is an intangible asset,” said the banker. The CBI is currently investigating a case against Kingfisher Airlines and its former management for cheating and defrauding 17 banks of at least Rs 7,000 crore.
According to CBI sources, the amount involved in the alleged fraud by Kingfisher and its promoter may increase. The agency has already pulled up banks for not registering a complaint against the grounded airlines or its promoter despite the default. Kingfisher and SBI did not respond to emails seeking comment.
The CBI, too, did not respond to emails seeking official comment. In April 2014, after Kingfisher defaulted on loans, the banks put up nine pledged trademarks of the airlines for sale. However, SBICAP Trustee Co. Ltd (STCL), a wholly owned subsidiary of SBI Capital Markets, which had sought an expression of interest (EoI) from parties to acquire the trademarks, did not get any serious bids for the trademarks. The nine trademarks that remain unsold include Fly Kingfisher, Flying Models, Funliner, Fly the Good Times, Kingfisher and Flying Bird Device, registered in the name of Kingfisher Airlines or held by the UB Group but transferred to the airline for use.
Brand consultant Harish Bijoor, owner of Harish Bijoor Consults Inc, said banks will never be able to monetise the Kingfisher Airlines brand as the mother brand Kingfisher primarily represents a completely different category of product — beer owned by United Breweries. “There can be no sole ownership of the Kingfisher brand. So essentially, the Kingfisher Airlines brand that the banks hold is a dud. Banks will never be able to sell the trademarks,” said Bijoor.
The banker, who spoke to The Indian Express, also said that banks would not be able to monetise the Kingfisher brand till they get an injunction from a court restricting United Breweries from using the Kingfisher trademark.
In the past, United Breweries has clarified that it fully owns the Kingfisher brand that is registered by the company under trademark classes pertaining to alcoholic beverages and that this hasn’t been hypothecated or pledged to any lender to secure loans. In a separate development, SBI has moved four applications against Mallya in the debt recovery tribunal (DRT) at Bengaluru. SBI’s application has asked for impounding of Mallya’s passport, his arrest, first right to the $75 million settlement of Mallya with Diageo and a full disclosure of his assets in India and abroad.