Banks may want bigger share of bleeding airline

Mumbai: Beleaguered Kingfisher Airlines may be looking for a government lifeline but the sharp fall in its share price raises new concerns. The consortium of 13 banks, including SBI and ICICI Bank, that holds 23.37 per cent in the loss-laden company as a result of debt restructuring (part of debt converted to equity), may seek fresh collateral since the market price of the shares has gone below the price at which they were issued to the banks in lieu of the debt.

The airline, promoted by UB group chief Vijay Mallya, was burning cash at a rapid rate and posted losses of over Rs 4,700 crore in the last three years. Industry experts and the company’s auditors recently raised doubts about the existence of the airline and said its net worth has been eroded.

Veritas, a research firm, estimated that the airline has accumulated losses of approximately Rs 8,176 crore — this is expected to rise steeply when it announces its second quarter results next week.

Banks held around 5 per cent stake in Kingfisher Airlines till December 2010 but their stake now stands at 23.37 per cent as a result of the debt recast package under which the part of the Rs 7,651 crore loan by the banks was converted into equity at Rs 64.48 per share. Banks also made a mark-to-market loss of over Rs 520 crore on loan conversion earlier this year as share prices have fallen steeply since then.

Kingfisher’s share price fell by over 19 per cent today to hit its all-time low of Rs 17.55 before closing the day at Rs 19.65 — a fall of 9.5 per cent. This fall raises the risk of pooling in more collateral to banks by Kingfisher.

While bankers say they have secured themselves against listed securities of other UB Group companies, the falling share prices raises a risk of further collateral. “We have fully secured our exposure with listed securities of other UB group companies. There has been no payment default,” said an official of a bank hinting that banks are likely to safeguard their interest with further securities.

The share price of the promoter company United Breweries (Holdings) Limited fell sharply by 16.8 per cent during the day before closing the day at Rs 89.15 with a fall of 9.7 per cent. United Breweries (Holdings) holds 40.1 per cent in Kingfisher Airlines. Only a year ago on November 10, 2010, the shares of Kingfisher Airlines were trading at Rs 90 and that of UB Holdings at Rs 336.

Another flagship UB Group company saw its share prices crumbling too as the shares fell by 8.6 per cent during the day to close at Rs 835.3. The shares however fell by up to 10.3 per cent during the day. A year-ago the share of the company stood at Rs 1,470.8.

Thus the share prices of all group companies have fallen sharply over the last one year. ICICI plunged by 4.6 per cent and SBI shares fell by 3.5 per cent.

The banking consortium is now both an owner of and a creditor to the airline, thereby complicating an intractable situation further, and jeopardizing its role as the steward of shareholder and depositor capital. With the airline bleeding with huge losses, repayment of remaining Rs 6,000 crore loans is also under watch.

Source: Financial Express