No easy lifeline for Kingfisher from banks

NEW DELHI/MUMBAI: Lenders are firm on not providing fresh assistance to Vijay Mallya-promoted Kingfisher Airlines unless the company clears its dues to banks, a move which is expected to pile more pressure on the cash-strapped carrier to stay afloat.

In addition, banks want the promoters to pump in Rs 1,500 crore equity and provide more collateral for a fresh lifeline given that they have taken a Rs 3,000-crore hit on their books over the last 12 months.

Executives at State Bank of India-whose subsidiary SBI Caps has prepared a financial plan for the beleaguered airline-said there was no move to provide more funds while its chairman Pratip Chaudhuri refused to discuss the issue citing client confidentiality. SBI's shares fell 8% on Wednesday on reports that the bank was providing loans and guarantees to Kingfisher at a time when the airline owed over Rs 100 crore to it.
Incidentally, its Rs 12,000-crore drop in market capitalization from Rs 1,55,683 crore was much more than the banking industry's Rs 7,000-crore loan exposure to the airline.

Bankers said that last Friday, during a meeting to review SBI Caps's proposal for a Rs 2,200-crore succour, State Bank executives had suggested that banks that had not classified Kingfisher as a non-performing asset yet could look to provide fresh assistance. Other lenders had, however, opposed the move.

Bank chiefs TOI spoke to said it was difficult to prove fresh funds given that almost all banks had set aside Rs 1,000 crore last month to cover for non-payment by Kingfisher. "We are not just answerable to our shareholders but even to CBI and CVC. It will be difficult for us to defend this kind of action," said a bank chairman. SBI alone had to provide Rs 300 crore on exposure of Rs 1,500 crore.

Executives at the bank said SBI could not break ranks from the consortium of lenders and advance fresh loans by itself. Any future action would be a consortium-led approach, sources said.

"The company has not got back on track and most of the assumptions made during restructuring have not worked out as anticipated," said a banker. At the same time, he said lenders could not completely let go as banks did not have the courage to take a Rs 7,000-crore hit.

During the last restructuring, banks took a hit of around Rs 2,000 crore, with over Rs 500 crore on account of the difference with the price at which debt was converted into equity. Banks had converted debt into equity at over Rs 64 a share, while Kingfisher closed at 25.05 on BSE on Wednesday, 6.5% lower than Tuesday.

The cash-strapped airline had its bank accounts frozen earlier this week as it failed to remit tax payments to the government. However, sources in the insurance industry said it had managed to make a quarterly payment towards fleet insurance.

According to the Centre for Asia Pacific Aviation (CAPA), Kingfisher requires over $800 million (nearly Rs 4,000 crore) over the next 12-18 months to fund its business and return to profitability. About half of this amount, CAPA head Kapil Kaul said, was required immediately and had to come in form of equity contribution from promoters.

"This capital injection needs to be combined with a complete recast of management and induction of independent directors on board who have strategic understanding of the business and can assist the management in the turnaround of the airline," Kaul said.