ICICI Bank, on Monday, sold its entire debt of Rs.430 crore in the crisis-ridden Kingfisher Airline to Srei Venture Capital Ltd., a group company of Srei Infrastructure Finance Ltd.
“We (ICICI Bank) don’t have any debt exposure to the airline now,” said a spokesperson, of the bank.
Kingfisher Airlines, owned by liquor baron Vijay Mallya, was launched in 2005 and has not reported profits since. The airline has a total outstanding debt of around Rs.7,500 crore. Banks which had given loans to Kingfisher Airlines include State Bank of India (Rs.1,400 crore), PNB (around Rs.700 crore), Bank of Baroda (around Rs.500 crore) and ICICI Bank (around Rs.450 crore).
“The debt fund of Srei Venture Capital must have got these bonds or debt at a very healthy yield considering the risk of default involved,” said Jagannadham Thunuguntla, Head of Research, SMC Global Securities. This is a typical “junk bond investing strategy” widely used globally. However, he said, “If foreign direct investment is permitted into aviation, and Kingfisher can get an equity partner or equity infusion from the UB group, then risk of default is quite less.”
In the recent past, this must be one of the rare and innovative investing strategies used in the Indian market. This kind of strategy is quite familiar globally but not in India.
Opportunity in securities
Indrani Dutta writes from Kolkata:
In response to queries from The Hindu, SREI said that a debt fund managed by Srei Venture Capital Limited, had invested in the debt instrument of Kingfisher to the extent of about Rs.425 crore. It has invested against good security with adequate collateral. “The fund saw an opportunity in the securities and commensurate returns being offered for this proposal,” Srei said.
Promoter holding dips
The promoter holding in Vijay Mallya-led UB Group’s Kingfisher Airlines has dipped to a low of 35.86 per cent, the lowest since the carrier became a listed company after acquiring Deccan Airways. After excluding the shares they have pledged, the promoters hold a meagre 3.55 per cent in the crisis-ridden airline.
As per the latest shareholding disclosure by the company, the promoters hold 35.86 per cent, down from about 43 per cent in April and over 50 per cent at the close of the last fiscal ended March 31, 2012.
The company’s shares hit an all-time low of Rs.10.05 early last month, and are currently trading near Rs.12. About a year ago, the stock was trading over Rs.40.
The total market value of Kingfisher currently stands at about Rs.960 crore.
Sujay Mehdudia writes from Delhi:
It was a day of fast-moving developments for the beleaguered Kingfisher Airlines, Even as ICICI Bank announced that it had sold its debt in the airline to SREI Infrastructure Finance, the private carrier was also jolted by the failure of talks between its management, pilots and other staff.
Reports from Mumbai indicated that talks between the employees of Kingfisher, including pilots, ground staff, technicians and the cabin crew, and the airline CEO, Sanjay Aggarwal, have failed and that the employees have decided to go ahead with their strike.
With its woes overflowing, the banking consortium, in the meanwhile, is meeting on July 5 in Mumbai to take a call on the issue of debt restructuring and infusion of fresh funds into the airline.
The 12-bank consortium is led by State Bank and includes other lenders such as Punjab National Bank, Bank of Baroda and IDBI Bank. The Kingfisher management is likely to present a road map for nursing the airline back to health, and also seek fresh funds to deal with the present financial crisis situation in addition to restructuring the serving of loans.
Recently, its 34 aircraft were taken away by the lessors for the reported failure of Kingfisher to repay the rental lease amount of around Rs.1,000 crore.
It is learnt that Kingfisher is likely to approach the Directorate-General of Civil Aviation (DGCA) to seek approval for further reducing its flights by another 30 per cent.
At present, the airline is operating around 20-22 flights on domestic routes and wants to reduce it further as the revenues are not matching expenditure.