Wednesday, July 11, 2012

Indian 'king of good times' falls on hard times

Business Times: Tue, Jul 10

JUST when it seemed that things couldn't get any stormier for Vijay Mallya - chairman of the United Breweries (UB) group that straddles aviation, pharmaceuticals, IT and real estate - the 57-year-old tycoon's fortunes seem to have hit a new low.

After defaulting on repaying his huge debts on Kingfisher Airlines (KFA), the industrialist may now see two of his properties put on the block. Lenders have initiated steps to recover about US$14 million from the sale of Kingfisher House in suburban Mumbai (estimated market value: US$18 million) and Kingfisher Villa in southern Goa, pegged at US$6 million.

Kingfisher, however, is trying to couch the sale of these properties in business-as-usual lingo. A recent statement from the airline read: "Kingfisher House in Mumbai has been lying vacant after the staff moved to our new offices at The Qube in Mumbai, and at that time itself, on our own accord, we approached the banks with a proposal to liquidate this unutilised asset."

The two properties were put up as security to the consortium of 17 banks, led by the State Bank of India. Mr Mallya's company tried to get the two properties removed from the security package, but to no avail. The auction of these properties could severely dent the image of Mr Mallya, who is ironically known as "the king of good times".

Kingfisher Airlines - India's second largest by domestic market share till last year in an industry dominated by six main players - is now the smallest carrier of the lot. Combined, India's six large aviation biggies are staring at a total debt load of US$20 billion and US$2 billion in annual losses. Furthermore, New Delhi's plans to allow foreign carriers to invest in domestic airlines - which can resuscitate the ailing sector - have been hampered by regulatory hurdles.

However, experts say that even if foreign direct investment (FDI) is allowed in aviation, KFA - laden with US$1.4 billion debt at the end of March - would have trouble luring investors.

Having eroded its equity, KFA has frittered away its bargaining power too. It is selling tickets at least 20 per cent lower than its competitors just to regain the market it lost due to reduced flight operations. The company has also slashed its schedule, operating only 16 planes, down from a peak of 64 in 2010. Staff and other bills are pending since February.

A recent deal between ICICI Bank and SREI Infrastructure Finance has not helped. ICICI, one of the key lenders and shareholders in KFA, sold the last of its close to US$120 million loan to SREI. The deal saw ICICI offloading its loan portfolio worth about US$80 million and transferring all the collateral given by Mr Mallya and the UB Group along with it to SREI. Interestingly, this includes the personal guarantee of Mr Mallya and about 4 per cent of his United Spirits shares.

Over time, Mr Mallya has ended up pledging large amounts of equity in his liquor business as collateral to fob off creditors. The promoter shareholding in KFA has plummeted to a record low of 35.86 per cent, from 50 per cent-plus on March 31. Most lenders listed their Kingfisher loans as non-performing in the December quarter.

The banks have now asked the airline to submit a report on the steps taken to augment its operations in the next two weeks. Undeterred, Kingfisher has asked the incredulous banks for another infusion of loans. "How can we extend more loans when there's no assurance on our previous payments?" said a senior executive of a leading bank to which the airline owes money.

Martin Koh | 86666 944 | R020968Z
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