Vijay Mallya may have to dip into his liquor empire to help out his doddering aviation dream. Cash-strapped Kingfisher Airlines (KFA) needs an immediate capital infusion of about $500 million (Rs 2,500 crore) to restore a semblance of normalcy in its day-to-day operations, but it would involve tangible monetary commitment of more than Rs 1,000 crore from group flagship United Breweries (UB) Holdings, which presides over the baron's family jewels.
Analysts said neither Mallya nor UB Holdings, which reported a net profit of Rs 40.29 crore in the year-ending March 2011, is cash-strapped. However, committing more than Rs 1,000 crore in funds could dent his expansion plans in the spirits business.
A Mumbai-based analyst who tracks consumer companies said UB Holdings is scouting to acquire marquee liquor brands in Europe for which it needs cash.
In August, the company's board approved a Rs 2,000-crore rights issue to raise finances to fund daily operations, but analysts wonder if UB Holdings will generate sufficient resources to invest in the issue so as to retain control over the company.
As of June, United Breweries (Holding), its subsidiaries Kingfisher Finvest India, United Overseas and Mallya held 58.61% of the airline.
A consortium of 13 lenders owned another 23.27% of Kingfisher shares following a debt recast this year.
KFA chief executive officer Sanjay Aggarwal did not respond to an emailed questionnaire even after several days.
But a source, who did not wish to be identified, said the 13-bank consortium may opt not to subscribe to the rights issue to dilute their holdings in the company.
A rights issue is a route by which a company raises capital. New shares are offered to existing shareholders in proportion to their current shareholding, usually at a discount to the current share price - which gives investors an incentive to buy the new shares.
In his annual general meeting address in September Mallya had played down fears about guarantees that he and UBH had given KFA creditors.
"The quantum of guarantees issued by UBHL on behalf of Kingfisher has been grossly exaggerated and incorrectly reported in various sections of the media... I have also personally stepped in to provide a third level of comfort to the lenders who have been extremely supportive of Kingfisher," he said.
UBHL has provided Kingfisher with corporate guarantees totaling Rs 9,135 crore. Each of these primary obligations is supported, in the first instance, by Kingfisher's assets and cash flows. UBHL guarantees are by way of additional collateral to further strengthen the promoters' commitments.