Kingfisher endgame: Mallya's hold is now almost zero

Should we be calling Vijay Mallya the owner of sinking Kingfisher Airlines anymore? Consider the evidence to the contrary.

With debt of over Rs 7,500 crore, Mallya has pledged nearly 95 percent of his shareholdings in the airline to lenders. According to Business Standard, the total current market value of Kingfisher is Rs 960 crore, but Mallya owns only Rs 30 crore worth of shares that are unencumbered. This means his lenders are the real owners of the airline.

But now even the lenders are bailing out. On Monday, ICICI Bank announced that it had dumped its entire Rs 430 crore loans to Kingfisher in favour of Srei Infrastructure Finance at par - along with the collateral. The bank, which held 5.68 percent of Kingfisher’s shares through loan conversions, now holds about 3 percent. Other bank lenders apparently own around 21 percent. They may also be in a mood to bail out like ICICI Bank.

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[caption id=“attachment_365227” align=“alignleft” width=“380” caption=“Mallya’s personal guarantees on the loans also stand transferred to any new buyer of Kingfisher debt. AFP”]  [/caption]

Last week, LKP Finance , a non-bank finance company, bought optionally convertible debentures in Kingfisher for Rs 160 crore - which will be converted to shares shortly. That’s another piece of Kingfisher that Mallya will not own. LKP will hold 16 percent in Kingfisher after the conversion, next only to Mallya’s 35 percent, but much bigger than Mallya if one excludes his pledged shares.

The reason why people are still willing to buy Kingfisher’s debts is that they are fully secured: it means that if the loans go bad, which they surely will unless some foreign buyer puts Mallya out of his misery, the lenders will own not Kingfisher, but the collateral - shares in Mallya’s liquor companies, including United Spirits.

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Mallya’s personal guarantees on the loans also stand transferred to any new buyer of Kingfisher debt, which means his personal properties and shares in other companies may also be indirectly pledged.

But it isn’t the lenders alone who Mallya owes money to. The taxman, the airports, the aircraft lessors, and Kingfisher’s own employees are demanding their dues - and these are often non-collateralised. Last week Mallya’s lessors took away 34 of his aircraft as he couldn’t pay their lease rents.

When the airports, employees and taxmen are done with Mallya, one can be sure that he will be left with nothing.

In fact, the vultures are descending not on his airline, but his pledged shares: his cash-generating liquor businesses. There is a good chance that whoever is now lending money to Mallya is buying not the airline - which is anyway a dead duck - but his liquor business.

The Economic Times speculates that in the Srei deal, the collateral involved is about 4 percent of United Spirits, and Diageo, a global booze giant, may be sniffing around to see what to pick up from the melee.

Kingfisher is practically over. Mallya is down to his underpants - like many of his calendar models.