Home >Companies >Kingfisher Airlines delays GDR sale after slump in stock prices

Kingfisher Airlines Ltd won’t start selling global depository receipts (GDR) to raise up to $350 million (Rs 1,579 crore) until its stock recovers and market conditions improve, raising concerns at some vendors as their payments are linked to the issue.

The Mumbai-based carrier had planned a GDR issue soon after December but that’s been stalled by the slump in its shares, said two persons familiar with the matter who declined to be named.

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The Vijay Mallya-owned airline, which hasn’t made a profit since its inception in 2005, has appointed investment banks CLSA Singapore Pte Ltd, Citigroup Global Markets Ltd and Morgan Stanley and Co. International plc to manage the GDR issue, said the official.

Global legal firm Linklaters Llp is preparing the prospectus, the official said.

“The offer price for the GDR is determined on the last two weeks’ average; so if your offer price is lower than the two-week average, investors, the minute they write your check, will go into a loss in their books," said one of the persons cited above.

He expects the airline to target March for the issue, before the fiscal year ends.

Kingfisher stock closed at 41.25 on Monday on the Bombay Stock Exchange from a high of 71.85 in December, a drop of 42.6%.

Airline stocks have all dropped during the same period. Jet Airways (India) Ltd fell 43.5% to 472.50 from 836.55, while SpiceJet Ltd has slipped 46.16% to 46.65 from 86.65.

The GDRs will be sold to institutional investors in the US, the UK and elsewhere, according to an internal note circulated by Kingfisher in December that was reviewed by Mint.

“Application will be made to list the GDRs on the official list of the Luxembourg Stock Exchange and to have the GDRs admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange," according to the note.

“While we will not comment on vendor dues situation or the GDR, the debt recast was signed off in December," a Kingfisher Airlines spokesman said in reply to emailed questions. Kingfisher expects to cut its debt to 6,007.30 crore from 7,651.12 crore after the restructuring exercise.

“The combination of restructuring and GDR will allow us to clear past issues and invest in our future," CEO Sanjay Aggarwal had written in a separate December letter to employees that was also reviewed by Mint.

The debt recast is expected to be complete in the next two-three weeks. “Immediately after the restructuring, we plan to launch the GDR to raise $250-350 million," Aggarwal had said.

A US-based analyst who tracks airline financing closely said Luxembourg provided easier listing rules.

“Luxembourg offers the Euro MTF listing that enables non-European companies to list securities on the exchange more readily and under more favourable terms than other exchanges, including London," said Ernest S. Arvai, president, The Arvai Group Inc.

“They have about 30,000 bonds issued there from foreign entities, as well as international securities," he said. “A GDR based in Luxembourg makes sense if one is seeking euro investors without a lot of hassle or securities regulatory scrutiny."

Kingfisher reported a 671.85 crore loss for the nine months ended December 2010 and officials at two key vendors said they are still awaiting payments, which they have been told are linked to the GDR issue.

Both officials—one with an oil company and the second belonging to an airport operator—declined to be named.

Arvai said the growing strain on the airline’s balance sheet would be worrying for parent UB Group unless funds are infused quickly.

“Nobody wants to invest in a company that is unprofitable and unlikely to become so," Arvai said. “Mallya cannot allow the airline to negatively impact shares of UB, and would likely let go, but who gets stuck with the bill is the question."

Graphic by Yogesh Kumar; Photo by Harikrishna Katragadda/Mint

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