By Anirban Chowdhury
MUMBAI--Kingfisher Airlines Ltd.'s (532747.BY) lenders plan to
soon start a process to sell 5 billion rupees ($93 million) worth
of shares deposited by parent UB Group as collateral against
loans.
In the first of several planned moves likely to cause severe
financial strain across the UB conglomerate, the lenders will sell
shares in group companies Mangalore Chemicals and Fertilizers Ltd.
(530011.BY) and United Spirits Ltd. (532432.BY), said a senior
State Bank of India (500112.BY) executive.
"Kingfisher had told us to wait as there was some money coming
from the Diageo deal. That hasn't happened," Shyamal Acharya,
deputy managing director at SBI, told The Wall Street Journal.
He was referring to a United Spirits plan to sell a 53.4% stake
to British liquor company Diageo PLC (DGE.LN) for up to $2 billion.
Part of the proceeds were expected to come to Kingfisher, but the
deal hasn't come through yet.
Mr. Acharya separately said on television that a consortium of
lenders to Kingfisher will try and recover some of the total 70
billion rupees of loans in the current quarter through March
itself.
His comments come a day after the consortium decided to recall
all loans to Kingfisher, which has been grounded since October.
The recall is a demand for immediate repayment, failing which
the banks will take control of any assets deposited as
collateral.
The consortium has appointed a core team of four banks -- SBI,
IDBI Bank Ltd., Bank of India and Punjab National Bank -- to take
the recall process ahead and deal with legal issues.
Mr. Acharya said that the major chunk of the collateral held by
the consortium is in shares and in guarantees from group companies
including United Breweries (Holdings), United Breweries and United
Spirits. It also includes the Kingfisher brand, its office in
Mumbai and a villa owned by the UB Group.
The total value of the collateral, excluding Kingfisher
Airline's brand, is 65 billion rupees, Mr. Acharya said.
In the first response since news of the recall broke late
Tuesday, a senior Kingfisher executive said the company is "aware
of the situation and is doing what we can."
"Fifteen days earlier, I would have given a confident answer.
Today I have none," he said when asked whether the airline has any
chance of flying again.
Analysts said the recall will hurt investor sentiment for all UB
Group companies.
A sale of stocks in Mangalore Chemicals and United Spirits will
cause a "significant fall in share value, more so if they are sold
in the open market," said Ambareesh Baliga, an independent
investment consultant.
"While guarantees and other assets may take time and involve
legal proceedings, banks don't need legal approval for selling
shares," he added.
Kapil Kaul, South Asia chief executive at Sydney's CAPA-Centre
for Aviation, warned that the process of selling assets could take
a while. It will likely involve "a lot of haggling over asset
value," which means that the banks may not be able to recover the
full value of the loans.
Apart from the shares and guarantee, the UB Group also stands to
lose the 10 billion rupees it has pumped into Kingfisher.
The airline, which has made losses since its inception in May
2005, now owes more than $2.5 billion to its lenders, suppliers,
leasing companies, airport operators, other airlines, employees and
to the government in taxes.
Kingfisher and most of India's other airlines have been hit by
rising fuel prices, high interest rates and a slowdown in economic
growth which has curbed demand for air travel.
Run by flamboyant liquor baron Vijay Mallya, Kingfisher began by
expanding aggressively. But the plans backfired in the face of a
slowdown in traffic during the 2008 global economic crisis.
On Oct. 1 2012, its employees went on strike because they hadn't
been paid in months, forcing the airline to cancel all flights. The
government later deactivated its license.
Kingfisher has been trying without success in the last few years
to raise cash. It was recently in talks to sell a stake to
Abu-Dhabi-based Etihad Airways, but lost the race to rival Jet
Airways (India) Ltd., which is expected to soon announce its own
stake sale to Etihad.
Reacting to news of the loan recall, shares of UB Group
companies tanked Wednesday.
Kingfisher Airlines fell 4.54% to 10.58 rupees, United Spirits
dropped 4.84% to 1,862.45 rupees, United Breweries (Holdings)
plunged 9.94% to 70.25 rupees while United Breweries fell 9.26% to
642.50 rupees in a Bombay Stock Exchange market up 0.24%.
Write to Anirban Chowdhury at anirban.chowdhury@dowjones.com
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