PE funds may buy into Mallya's realty, not Kingfisher

Vijay Mallya seems to be knocking on all sorts of doors to recapitalise his dying airline.

Now that most funds have refused to buy any stake in Kingfisher Airlines, Mallya is seeking help from the private equity biggies to buy into the rent-yielding real estate business of UB Holdings.

A report in the Economic Times says PE major Blackstone has offered to buy out the prime office and retail realty blocks in UB city, the biggest commercial property project of around 3.7 lakh square feet in the heart of Bangalore for Rs 550 crore. The offer, however, will not include UB corporate offices and the branded ultra-high end Kingfisher residences.

Shares in Kingfisher Airlines rose 1.5 percent after the report.

UB Tower, which is 123 metres high and one of the tallest buildings in city, houses all the UB Group companies corporate offices, which include United Breweries, United Sprits, Mangalore Chemicals and Fertilizers, and UB holdings.

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Clearly after letting go of his crown jewel United Spirits to Diageo for $2.1 billion, the only other money-making business that could possibly provide some funds to Kingfisher is his realty assets.

“The deal could see Mallya offloading 3.60 lakh sq ft of tenanted office space and 60,000 sq ft of luxury retail that’s part of UB City,” a Times of India report said.

PE investors like Blackstone have been on the prowl to buy out rent-yielding office space assets, which are a safer bet when compared to typical PE investments in broader realty markets.

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UB City is a joint venture between UB Holdings and Prestige Developers, in which Mallya has 55% share of the developed space. Some of the big corporate names occupying office spaces in UB City include 3M, Apple, Citibank, Ernst & Young, Toyota, Kawasaki and Yahoo.

Given that UB Holdings is the parent company of Kingfisher Airlines, this deal could provide the much needed fresh equity infusion into the airline.

Meanwhile, another PE biggie TPG may be interested in picking up around nine to ten percent stake in Kingfisher Airlines even though the airline is looking to offload around 24 percent stake to a consortium of private equity investors through either a fresh issue of shares or through a secondary share sale. However, a CNBC-TV18 report said yesterday that no PE player is interested in the deal apart from TPG.

The Centre for Asia Pacific Aviation has said a fully-funded turnaround for Kingfisher would cost at least $1 billion. With no investors in place, Mallya may not be able to meet the deadline set by its lenders who have asked him to infuse fresh equity into the airline before asking for any more loans.

In a meeting with the consortium of bankers on Friday, Kingfisher Airlines’ senior management sought a week’s time to submit a turnaround plan. If the bankers are not happy with the revival plan they may invoke their Rs 8,000 crore guarantee to the airline.