Home >Companies >News >Kingfisher Airlines brand valuer Grant Thornton now in dock

Mumbai: Grant Thornton India Llp has come under the scanner of the Serious Fraud Investigation Office (SFIO) which is looking into the brand evaluation carried out by the tax and advisory firm for the Vijay Mallya-promoted Kingfisher Airlines Ltd.

SFIO, which comes under the purview of the ministry of corporate affairs, is looking closely at the 4,100 crore valuation attached by Grant Thornton to the Kingfisher Airlines brand in 2011, according to two people familiar with the development. That valuation in hand, Kingfisher Airlines made its eponymous brand the single largest collateral for its loans.

The defunct airline owes 9,091 crore to banks.

“Grant Thornton assigned a value of 4,100 crore to Kingfisher Airlines, although lenders arrived at a 160 crore valuation when they carried out their own internal exercise. There cannot be such a huge difference. Kingfisher Airlines was not profitable and the airline industry was not in good shape when Grant Thornton assigned this excessive valuation," said one of the two persons mentioned above, an official familiar with the investigations.

A notice has been sent to Grant Thornton seeking clarification on valuation, this person added.

A Grant Thornton spokesperson did not respond to an e-mail and phone calls seeking comment.

In a written reply to a Parliament question in April 2011, then minister of state of finance Namo Narain Meena said Kingfisher Airlines had pledged various assets to banks in a bid to raise cash and the company had to hypothecate the ‘Kingfisher (Airlines)’ brand, with an estimated value of 4,100 crore, to banks. The valuation was done by firm Grant Thornton, the minister said at the time.

Hypothecation is collateral given to lenders to secure debt.

“Grant Thornton was carrying out the audit for some of the group companies of the UB Group (of which Kingfisher Airlines was a part). SFIO is investigating all aspects of this brand valuation. SFIO has sent notices to lenders also in this regard," the first person said.

In April 2014, SBICAP Trustee Co. Ltd, a wholly owned subsidiary of SBI Capital Markets Ltd, attempted to sell the Kingfisher Airlines brand and called for an expression of interest in acquiring trademarks linked to the grounded Kingfisher Airlines.

The list of trademarks offered included “fly kingfisher" (label), “fly kingfisher", “flying models", “fly the good times", “funliner", “kingfisher" and “flying bird device".

There were no takers for these brands.

Shriram Subramanian, managing director, InGovern Research Services, a proxy advisory firm, believes that lending against brand value is tricky as any brand value is short lived.

“Brand valuation is ephemeral and generally banks should stay away from granting loans on the basis of this. They should rely on the collateral that can be sold or enchased at a later stage. One can argue that in the case of share pledge the banks generally take a haircut at the time of recovery but that is something tangible and can be monetized as opposed to brand value," he said. “At any given point the professional integrity of any firm should not be compromised. Any audit firm should keep a clear demarcation between the consultancy role and the audit role it plays. It is a matter of concern when the professional integrity is put at stake for business," he added.

The probe widens

SFIO has also sought from former employees of the airline, lenders, and audit and consulting firms the details of loans availed by Kingfisher Airlines and the collateral for these, said the first person.

He added that Mallya met SFIO officials on 29 February and expressed his willingness to co-operate with them.

“SFIO will be ready with its report in the next 20 days," the first person said.

Last week, a Hyderabad court issued a non-bailable warrant against former UB Group chairman Mallya, who left the country on 2 March. Press Trust of India, which reported this, said the case relates to a 50 lakh cheque issued by Kingfisher Airlines to GMR Hyderabad International Airport Ltd which was not honoured.

The agency reported Mallya’s counsel as saying that he would move the high court to get the warrant quashed. The warrant must be executed by 13 April.

Meanwhile, the Enforcement Directorate (ED) issued summons to Mallya, asking him to be personally present before it on 18 March. The summons followed the launch of a probe under the Prevention of Money Laundering Act against the former liquor baron. Mallya is yet to acknowledge the summons.

On Monday, ED continued questioning former executives of Kingfisher Airlines for the third day. A senior ED official said it would shortly start a second round of questioning of IDBI Bank Ltd officials.

ED is mandated with the task of enforcing the provisions of two special fiscal laws—the Foreign Exchange Management Act, 1999, and the Prevention of Money Laundering Act, 2002.

Since August 2014, the Central Bureau of Investigation has been probing the alleged collusion between the airline and some bank officials over loans granted to Kingfisher Airlines despite its negative credit ratings and net worth. Mallya is a guarantor to some of Kingfisher’s debt.

Mallya, who has taken to communicating through microblogging site Twitter says the time is not right for his return.

In a series of tweets last week, Mallya said, “I’m an international businessman. I travel to and from India frequently. I did not flee from India and neither am I an absconder. Rubbish."

Mallya also dismissed media reports suggesting that he hadn’t disclosed his assets. “News reports say that I must declare my assets. Does that mean that banks did not know my assets or look at my parliamentary disclosures?" he asked.

“As an Indian MP, I fully respect and will comply with the law of the land. Our judicial system is sound and respected," he tweeted.

Mallya is a member of India’s upper House of Parliament.

The Supreme Court last week issued a notice to Mallya following a plea from a consortium of creditor banks seeking to stop him from leaving the country. India’s largest lender, State Bank of India, declared Mallya a wilful defaulter in November.

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