Mumbai: The creditors of Kingfisher Airlines Ltd are likely to mandate India’s oldest mortgage lender, Housing Development Finance Corp. Ltd (HDFC), to value its so-called non-core assets, as they move to recover a part of the money owed by the debt-laden carrier, which started paying employees a part of their pending salaries on Friday.
In the first step, 17 bankers led by State Bank of India (SBI) asked the airline, controlled by liquor tycoon Vijay Mallya, on Friday to complete the valuation exercise on two properties—Kingfisher Villa in Goa and Kingfisher House in Mumbai—in the next 15 days.
Lenders said Kingfisher officials had agreed to the proposal.
“The 15 days’ period is not an ultimatum. It is the time given for the valuation to be done,” said a senior executive with SBI, requesting anonymity. “We advised them to value and dispose of the non-core assets instead of retaining them. Since the rights are with banks, the sale proceeds will directly come to our books.”
Paying dues: A file photo of Kingfisher Airlines’ aircraft. The airline started paying employees a part of their pending salaries on Friday
The banks have asked HDFC to carry out the valuation of Kingfisher’s non-core assets, or the assets that aren’t central to its main aviation business.
An HDFC spokesperson declined to comment for this story.
Kingfisher Airlines has pledged assets, ranging from its brand to office furniture, for Rs 6,400 crore of bank loans. The assets, including the luxury villa in Goa, two helicopters, Kingfisher House in Mumbai and shares, had been used as collateral for loans as of November 2011, minister of state for finance Namo Narain Meena had told Parliament in December.
With Kingfisher struggling to service its massive debt, the carrier’s creditors want mortgage lender HDFC to value some of its non-core assets. Mint’s P.R. Sanjai gives us the lowdown on what this means for Vijay Mallya’s airline.
After the loans were restructured, Kingfisher Airlines could not service them at the revised interest rate, turning them into non-performing assets (NPAs), the SBI executive said.
If a company does not service a loan for 91 days, it is classified as an NPA, requiring banks to set aside money to cover it.
“The lenders had given some margin money on certain fuel cost assumptions, but the jet fuel prices went up so much that the company could not service the loan,” the bank executive said.
Sharan Lillaney, an analyst at domestic brokerage firm Angel Broking Ltd, said he does not see any silver lining for Kingfisher Airlines. He noted that lenders are either selling their liabilities or planning to liquidate the assets of the airline, citing the example of ICICI Bank Ltd selling Kingfisher loans to SREI Infrastructure Finance Ltd.
Kingfisher Airlines, which has a total debt of Rs.7,500 crore, curtailed its operations from 365 daily flights a year ago to less than 100 flights a day, owing to the cash crunch. An immediate fund infusion is crucial for the airline, which has not made a profit since its inception in 2005. Kingfisher Airlines had converted Rs 750 crore of its debt into equity at a 61.6% premium over its share price. It allotted shares to lenders on 31 March 2011.
The airline’s spokesman Prakash Mirpuri said on Friday that it had started paying a part of the salaries owed to employees. Salaries have been pending since February.
On Thursday, Mirpuri said in a statement that it was wrong to state that banks had started recovery proceedings after a meeting of creditors the same day.
“The meeting was scheduled as an update meeting and there was no discussion on commencement of recovery proceedings,” he said.
“Kingfisher House 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 unutilized asset; and at today’s meeting, we raised the issue of this pending approval,” Mirpuri added.
Shares of Kingfisher Airlines on Friday ended at Rs 11.49 on BSE, down 3.77% from the previous close, while the benchmark 30-share Sensex fell 0.1% to close at 17,521.12 points.