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India rules out second loan recast for Kingfisher

business Updated: Dec 09, 2011 23:26 IST

Reuters
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The lenders have no plans for a second restructuring of its loans to India's struggling Kingfisher Airlines, India's junior minister of finance said on Friday, in a move that indicates relief may not come easy for the debt-laden firm.

In March this year, India's third largest airline had issued shares to a consortium of 13 banks led by State Bank of India and allotted shares to its founders in a restructuring process that helped pare debt.


"State Bank of India, leader of the consortium, has stated that at present there is no such plan," federal minister of state, finance, Namo Narain Meena said in Parliament, in answer to a query whether banks are planning to carry out a second restructuring of loans.

Government documents show that 19 banks have an exposure of 64.19 billion rupees to the airline. SBI, India's largest lender, has the maximum exposure of 14.57 billion rupees as of end November.

SBI has exceeded its exposure limit of 14.36 billion rupees, the documents show.

"The repayment to SBI in respect of advances by Kingfisher Airlines will commence from September 2012.

Servicing of interest is being done with some delay," Narain Meena said in a written reply to the Parliament.

Kingfisher, owned by flamboyant liquor tycoon Vijay Mallya, is desperately scouting for funds from potential investors and more cushion from its banks to stay afloat.

"Debt is not an option at all for Kingfisher. At the end of the day, debt and interest payments have overburdened the airline," said Kapil Kaul, chief executive for the Indian subcontinent and Middle East at the Centre for Asia Pacific Aviation (CAPA), an aviation consulting firm.

"What Kingfisher needs is an equity infusion of $200-$250 million urgently. Without bringing in equity there is no game."

The airline, which has been late in paying salaries, hit national headlines ever since it cancelled hundreds of flights in November in a move to cut costs and exit loss-making routes.

However, its problems multiplied with Mumbai airport putting it on cash-and-carry and service tax officials freezing 11 of its bank accounts for non-payment of dues.

"We are considering taking legal action against Kingfisher for not paying service tax," S.K. Goel, chairman of India's central board of excise and customs said on Friday.

A Kingfisher Airlines spokesman declined to comment.

Most Indian carriers, including state-run Air India, are troubled by rising fuel costs and price wars emanating from intense competition.

India's airlines are on course to post record losses of more than $2.5 billion for the year ending March 2012, and investors have become wary of an industry that, just a few years back, ordered hundreds of aircraft in an ambitious bet on the future.

ASSETS AS COLLATERAL

Kingfisher Airlines has pledged its brand as collateral with its lender consortium for 41 billion rupees, government documents showed. The brand valuation was done by Grant Thorton in 2010.

Kingfisher is one of India's most successful brands, ranked 116 by Campaign magazine in its top 1,000 Asia brands list for 2011, with only one Indian brand - Amul - higher.

Over and above the brand hypothecation, Kingfisher has also pledged collateral security worth about 11.3 billion rupees, including properties in Mumbai and Goa, helicopters and ground support and office equipment.

Chairman Mallya has given personal guarantees of 2.48 billion rupees to the banks while the airline's parent United Breweries Holdings has given corporate guarantees worth 16 billion rupees.

Kingfisher, which has a negative networth, aims to cut its current debt by 42 percent to 37.2 billion rupees through sale and lease-back of aircraft, sale of a property in Mumbai and conversion of rupee loans into lower interest foreign loans.

The airline is targeting an interest cost reduction of 3.94 billion rupees per annum.

Shares in Kingfisher, valued at $240.11 million, closed down 3.82 percent at 23.95 rupees in a weak Mumbai market.

The stock has lost more than 62 percent of its value so far this year, compared with a 21 percent fall in the main 30-share index.