Banks plan Kingfisher debt recast outside CDR

Banks plan Kingfisher debt recast outside CDR
Comment E-mail Print Share
First Published: Fri, May 21 2010. 11 20 PM IST

Graphic: Yogesh Kumar / Mint
Graphic: Yogesh Kumar / Mint
Updated: Fri, May 21 2010. 11 20 PM IST
Mumbai: The country’s biggest lender, State Bank of India (SBI), has approached the banking regulator, Reserve Bank of India (RBI), with a proposal to restructure a loan of around Rs2,000 crore given to Kingfisher Airlines Ltd, adding to the funding woes of the debt-ridden carrier.
The loan was given by a consortium of banks led by SBI. The other banks in the consortium are Bank of India, Bank of Baroda and Punjab National Bank.
Troubled loans are usually referred to the corporate debt restructuring (CDR) cell of the lenders after a majority of them approve a recast, which could entail a lower interest rate, a longer repayment period, or the conversion of overdue interest into the loan principal. This is done after a loan turns bad.
SBI wants to recast the Kingfisher loan outside the CDR platform because if it is classified as a bad loan or non-performing asset, then the airline will find it difficult to raise money through its proposed global equity offering.
Graphic: Yogesh Kumar / Mint
The banks, too, will need to set aside money as provision for bad loans.
Kingfisher Airlines plans to raise up to $350 million (Rs1,645 crore) through global depository receipts (GDR) and a rights issue in July-September this year.
“The bank has approached RBI with a proposal and we don’t know as yet whether the regulator will give its approval,” said a senior banker in the know of the development. According to him, this is the “best solution” at this point as it will enable the airline to go ahead with its GDR plan.
He also said that the banking industry was unlikely to take any further exposure to Kingfisher Airlines. The banker did not want to be identified considering the sensitivity of the issue.
A senior executive of United Breweries Ltd, which owns Kingfisher Airlines, said that the carrier has appointed SBI Capital Markets Ltd, SBI’s investment banking arm, to advise on the proposed loan restructuring.
A Kingfisher Airlines spokesperson declined comment.
The ailing carrier, which had a Rs7,413 crore debt at the end of December, has been trying to raise up to $350 million of fresh equity capital for the past year.
Of its total debt, Rs2,099 crore is short-term and the rest a long-term loan.
Rival airline Jet Airways (India) Ltd—which is the largest in the country by passenger traffic and has a 25.9% market share—has a debt of Rs13,759.50 crore.
A senior Union Bank of India executive said banks are hesitant about lending to airlines as almost all of them are loss-making entities because of low capacity utilization, high fuel cost and poor sales due to the economic slowdown.
“Our exposure to the airline sector is very little,” the bank official said.
For the quarter ended December, Kingfisher Airlines posted a net loss despite reporting an operating profit as it cut costs.
Net loss for the quarter marginally rose to Rs419.96 crore, from Rs413.39 crore in the corresponding period in fiscal 2009. In the first nine months of the year, it posted a net loss of Rs1,075 crore.
The airline will announce its annual results on 28 May.
Kingfisher Airlines—which is owned by liquor baron Vijay Mallya—acquired loss-making Deccan Aviation Ltd in 2007, but even before the integration was complete, it ran into the global economic slowdown.
More recently, the volcanic ash cloud over Europe as well as the fallout of the European debt crises have hit the Indian carriers hard and hindered their efforts to raise at least $1 billion.
Earlier this month, The Economic Times wrote that IDBI Bank Ltd has asked Kingfisher Airlines to repay a separate short-term loan of Rs900 crore as it had missed some instalments. The airline has furnished guarantees from its holding firm United Breweries Holdings Ltd.
Meanwhile, Kingfisher Airlines is going ahead with expansion on international routes, a segment that has seen losses in the past.
Comment E-mail Print Share
First Published: Fri, May 21 2010. 11 20 PM IST