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KF house auction: What’s a Rs 150 cr asset compared to Rs 7000 cr debt?

The SBI-led bank consortium is auctioning Kingfisher House in Mumbai today in a bid to recover a part of the Rs 7,000 crore debt due from the now grounded Kingfisher Airlines (KFA).

business Updated: Mar 17, 2016 14:27 IST
Suchetana Ray
Suchetana Ray
Hindustan Times
Kingfisher Airlines,Vijay Mallya,Assets
As Kingfisher House goes under the hammer in Mumbai, what are the other options that lenders have, to recover the Rs 7000 crore due from Vijay Mallya?(HT Archive)

The SBI-led bank consortium is auctioning Kingfisher House in Mumbai on Thursday, in a bid to recover a part of the Rs 7,000 crore debt, due from the now grounded Kingfisher Airlines (KFA) launched by controversial businessman Vijay Mallya. It seems unlikely though that more than Rs 150 crore can be recovered from this auction.

Read more: SBI to auction Kingfisher House today, base price set at Rs 150 cr

Mallya become the darling of prime time news with debates arguing ways of bringing the erstwhile liquor baron back to India or looking at how banks can recover their dues, as news of his $75-million payout by Diageo Plc broke. As KFA’s chairman, Mallya was declared a willful defaulter by the banks for failing to clear the company’s debts.

SBICAP Trustee Company Ltd, which took possession of the property last year, will conduct an e-auction of the 2,401.70 square metre property. The Trustee Company has kept a reserve price of Rs 150 crore and the bid increment amount at Rs 5 lakh, a public notice said.

The e-auction will be done under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

As the auction is unlikely to cover the debt, the onus now lies on lenders to recover the crores owed to them by Mallya. But aside from the Kingfisher House, it’s confounding to realise that options are few.

Following the November 2011 debt recast of KFA, the Kingfisher House and Kingfisher Villa in Goa were pledged to lenders, with a personal guarantee from Kingfisher chairman Vijay Mallya and other guarantees like the brand Kingfisher.

Experts say the Kingfisher Villa is not going to fetch more than Rs 90 crore, which still leaves a large chunk of the debt unrealised.

“The assets of KFA can also be auctioned. The office is being auctioned today, that leaves us with KFA’s fleet. But the tax department has already attached them and will auction them soon,” said a source in Enforcement Directorate (ED) on Thursday.

KFA’s fleet had a handful of planes in operational condition when it shut down. Lessors had taken away a majority of them. Seven aircraft are now in Chennai, two more are in Delhi and Mallya’s corporate plane – an Airbus A319 – is parked in Mumbai. The central excise department had attached these 10 aircraft and will auction them in May through the state-owned MSTC Ltd.

Apart from the Rs 7,000 crore owed to banks, KFA also owes Rs 350 crore to the income tax department and Rs 100 crore to the service tax department. “It’s unlikely that the auction of planes will cover for all the dues with the tax department,” pointed out the ED source.

As far as KFA’s assets are concerned, the banks consortium has already sold shares of the defunct airlines for Rs 550 crore in 2013.

ED is investigating money laundering charges against Mallya in the Rs 900 crore-IDBI loan default case, but is yet to proceed with attachment of properties. “We are yet to identify properties to be attached,” said the source.

With lenders queuing up to recover their dues, sources in the Directorate are not very certain if there will be options left for them. Under the Prevention of Money Laundering, ED attaches properties equivalent to the amount of the alleged crime, Rs 900 crore in this case.

First Published: Mar 17, 2016 12:17 IST

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