HEADLINES:
September 16 2019
With just 7 planes, Kingfisher is barely alive
26 September 2012

Vijay Mallya has to speed up his deleveraging process as Kingfisher Airlines is facing the danger of a licence cancellation with its fleet fast dwindling.

Banks are also likely to fasten the grip as Kingfisher brand is losing its fizz after the RBI reminded the lenders it can’t be used as collateral for the huge loan exposure they have to the airline.

According to a report in Mint, licence cancellation is hanging on the airline like the sword of Democles as its fleet size has dwindled to a mere seven.

Once the number falls below five, the Directorate General of Civil Aviation will have no option but to cancel the flying licence.

The situation is dire, considering Mallya has not said anything definitive about United Spirits stake sale to Diageo.

“There is no certainty that a transaction will be done,” Mallya said on Tuesday.

Media reports have suggested Mallya may not favour losing the control of his liquor business, which the UK distiller is keen on gaining.

In addition, the indirect control of Whyte & Mackey that Diageo may get through United Spirits may expose the UK company to anti-monopolistic laws of Europe.

According to a Times of India report, both the companies are exploring a possibility to float a joint venture for emerging markets, especially Africa.

The move is in line with United Spirits’s recent focus on emerging markets, the report said. An industry source has been quoted as saying this will be an “interesting front opening up for Mallya as such a joint venture can mop up about 20 million cases of sales in three years”.

Whatever Mallya’s options are, he will have to take a decision on war footing.

Bankers have already said they will not lend further to debt-ridden Kingfisher.

In the last meeting they also insisted that Vijay Mallya has to be personally present for them to take a decision.

And adding to the trouble is the RBI’s reminder to banks that Kingfisher brand cannot be considered as a collateral as it is intangible.

According to a report in Business Standard, the RBI’s move means banks’ loans to Kingfisher will become unsecured, which will result in higher provisioning for banks.

With banks already facing a further deterioration of NPA, this will have many of them worried. SBI has an exposure of Rs 1,400 crore to Kingfisher and IDBI Bank Rs 727 crore. Aggregate exposure of banks to the airline is about Rs 8,000 crore, according ot the BS report.

However, it remains to be seen how much will the deal between United Spirits and Diageo help Kingfisher, or Vijay Mallya for that matter.

According to a Reuters report, a stake sale in United Spirits will only help the liquor company.

The deal is solely for United Spirits as Mallya would not want to put good money after bad money, said Sharan Lillaney, an analyst at Angel Broking who tracks both United Spirits and Kingfisher Airlines, has been quoted as saying in the report.

The stake sale is basically to get United Spirits out of a high-debt position that it is currently in, he said.

The report said quoting sources that Diageo may offer Rs 1,200-1,300 rupees a share for United Spirits, valuing a 25 percent stake at up to roughly $793 million.

This amount will only be a drop in the ocean of debt that Mallya’s companies have. United Spirits has a debt of about Rs 8,000 crore. Add to it Kingfisher’s Rs 8,000 crore. Not to mention the accumulated losses and other dues to fuel suppliers and employee salary.

 

 

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