Mumbai: At least 10 banks will throw a Rs 200 crore lifeline to Kingfisher Airlines Ltd, money that Vijay Mallya’s debt-ridden carrier will use as working capital, even as flight cancellations continued unabated.
Clipped wings: The DGCA summoned the management of Kingfisher Airlines on Tuesday as the carrier has been cancelling 32 flights a day since 17 February without informing the regulator.
Of the 18 banks that have exposure to Kingfisher, loans to the carrier haven’t turned bad on the books of 10 of them. These are the banks that will give fresh money for now, according to three bankers with direct knowledge of the development. One of them is the chairman of a public sector bank.
Mint could not ascertain the names of the banks that will give money to the carrier. Loans to Kingfisher have turned into non-performing assets on the books of State Bank of India, Bank of Baroda and Bank of India, among others. The new money will come from relatively smaller banks.
More money will flow in once the contribution of promoters and potential investors in the airline is ensured, the bankers said, requesting anonymity.
There were uncorroborated reports on television channels that banks were close to giving the company Rs 1,000 crore and that Kingfisher was working to get the accounts attached by the income-tax department freed. The accounts were frozen because the company allegedly hadn’t paid tax dues.
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Mint’s P.R. Sanjai says Kingfisher Airlines will get a critical 200 crore lifeline from a group of banks that will provide it some working capital.
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Kingfisher shares plunged as much as 19.55% in intraday trade on BSE on Tuesday, but revived as the news of fresh bank funding trickled in. The stock closed 0.75% higher at Rs 26.80; the benchmark Sensex gained 0.76%.
The airline told stock exchanges on Tuesday that some of the holders of its optionally convertible debentures had converted a portion of their holdings into shares.
The airline had allotted shares to LKP Securities Ltd, Redect Consultancy Pvt. Ltd and Star Investments Pvt. Ltd at a conversion price of about Rs 25.01 a share.
The airline did not disclose how much stake these companies would hold after the share allotment.
The company had allotted 70.9 million optionally convertible debentures at 8% to these three entities at Rs 100 each in January last year. It had earlier said the holders had the option to convert the debentures into shares within 18 months from the date of issue.
The airline clarified that the share allotment wouldn’t trigger an open offer for shares.
In the same note, it said, “The company is not currently contemplating a rights issue.”
Kingfisher Airlines had said last year that it planned to raise $250 million (around Rs 1,230 crore today) through a global depository receipts issue. Later, the carrier said it would raise $400 million from a rights offer.
An immediate fund infusion is crucial for Kingfisher, which has not made a profit since its inception in 2005. It’s currently operating 28 planes out of a total 64 owing to the cash crunch.
The Directorate General of Civil Aviation (DGCA) summoned the airline’s management on Tuesday as the carrier has been cancelling 32 flights a day since 17 February without informing the regulator.
“The airline’s financial position was critical for the past one year. It urgently requires cash as it is making huge losses. Who brings money does not matter for the airline at this point of time,” said Sharan Lillaney, an analyst at domestic brokerage Angel Broking Ltd.
A senior Kingfisher executive said his airline has made a presentation to qualify for a Rs 1,500 crore loan from banks, citing the readiness of potential investors and its revival plan in the growing Indian market.
Two executive directors at public sector banks said the banks have not discussed any plan to disburse Rs 1,500 crore as of now. A final picture will emerge only after bankers are convinced about the promoter’s willingness to bring in his contribution, they said on condition of anonymity.
DGCA investigation
On Tuesday, director general of civil aviation E.K. Bharat Bhushan said Kingfisher Airlines was operating 175 flights a day out of a total of 240 that it’s supposed to. Bhushan said the airline is likely to pay salaries due until January by 20 March.
The aviation regulator ordered a fresh investigation into the safety of Kingfisher’s planes.
Normal operations will resume in the next five-seven days and the airline has sufficient pilots to fly its planes, said Sanjay Aggarwal, chief executive officer of Kingfisher Airlines.
The troubles facing Kingfisher Airlines stem partly from the acquisition of Deccan Aviation and its Air Deccan in 2006, which meant having to take on debt, said Ashesh Shah, director and founder of Trans-Continental Capital Advisors Pvt. Ltd, a company that gives financial advisory and turnaround assistance to many firms in India and abroad.
It was unable to raise fares because of intense competition at the time with budget carriers expanding.
“When an airline is in financial stress, it is a symptom or manifestation of fundamental issues of the environment,” said Shah, who has advised airlines in the US on turnaround plans. “Kingfisher Airlines has also run out of options to do a sale and lease-back of airplanes unlike other carriers to reduce debt.”
Shah said any debt restructuring or interim liquidity arrangement won’t solve the fundamental problem of the airline or the industry.
pr.sanjai@livemint.com