By S.P. Tulsian & Geetanjali Kedia

17 lending bankers to Kingfisher Airlines (KFA), having an aggregate exposure of over Rs. 7,500 crore, have unanimously decided to re-call the loans. In this situation, consortium of these 17 bankers, will look to sell the pledged assets being properties, shares and other tangible assets, as also, invoking corporate guarantees of United Breweries (Holdings) Ltd. being the promoter of KFA and the personal guarantee of Dr. Vijay Mallya.

Who is Promoter of KFA  ?

United Breweries (Holdings) Ltd. (UBHL) is the promoter of KFA, holding 19.76 cr. shares, being 24.44% stake directly, as at 31-12-12. UBHL is also holding 6.35 cr. shares in KFA, being 7.85% stake, through its wholly owned subsidiary Kingfisher Finvest Ltd. Entire stake of KFA is pledged to the consortium of 17 bankers.

If we look to the assets held by UBHL, they are having much more value then what KFA owes to 17 bankers. But all these investments are not pledged to the consortium, except that of USL and MCF shares. So, to have recourse to the entire investments held by UBHL, the consortium has to fall on the corporate guarantee of UBHL, furnished for the said exposure of Rs. 7,500 cr. But that will not be an easy process and may see long litigations.

Apart from that, personal guarantee of Dr. Vijay Mallya can also be treated as a good cover to the advances of 17 banks. But, similar problem of its legal recourse may again seen to be a big hurdle and an uphill task.

However, whenever loans are recalled by the bankers, it is a known fact that they remain prepared for a haircut, as well. Generally, in such cases, we see the lenders foregoing 100% of funded interest and about 20% to 40% hair cut on the principal dues.

It is difficult for us to break these dues of Rs. 7,500 crore, in these two heads. But, one may presume that principal dues may be of about Rs. 6,000 crore and funded interest dues are of about Rs. 1,500 crore. So, one may look for a sacrifice of about Rs. 3,000 crore, which works out at 40% of the present dues.

Banks may be happy to settle the entire dues for about Rs. 4,000 to Rs. 4,500 crore. Conversely, UB Group will try to settle these dues at around Rs. 3,000 to Rs. 3,500 crore, by making a one-time payment.

In such a situation, UB Group will also be keen to settle it at the earliest, as, unless and until they do it, they may not be able to go ahead with stake sale in USL to Diageo, at Rs. 1,440 per share. Value of 3.60 crore shares of USL, held by UBHL, as stated above, works out at Rs. 5,200 crore, even if it is calculated at Rs. 1,440 per share. Thus this amount can be used to partly pay off the 17 bankers, while remaining amount of around Rs. 1,500 crore, can be partly used to pay off other liabilities of Rs. 6,300 as stated above.

If VM or UB Group does not discharge the dues of 17 banks, as settled, they will be putting to risk their stakes in UBL, USL and MCF. So it is better to lose control of USL and save stakes in UBL and MCF.

Also, investment of UB Group in MCF, of around 30% stake, is seen as very small and non-strategic, which they may look to exit soon and this can get valued at over Rs. 65 per share.

Once KFA presumably becomes debt free and free from supplier’s liabilities, salary dues, Govt. dues etc., it becomes easy for UB Group, to negotiate with a strategic investor, to induct them in the company by offering them 49% stake in KFA. Free from all liabilities, and considering the value of intangibles held by KFA, like permissions, licences, infrastructure at airports, brought forward losses etc. it can get valued at around Rs. 5,000 crore. So by doing this, UB Group, can salvage its other companies, as also, can curtail its losses of over Rs. 12,000 crore in KFA, to a great extent.

So does this mean that recalling of loans by the bankers is a ploy for the mutual benefits of bankers and UB Group?