If you thought Mallya was in a terrible financial shape, digest this: Mallya is now shifting his one and only private jet to a safe haven ( his UB group) to prevent frustrated lenders from attaching it for recovering dues.
At a time when lenders to bankrupt Kingfisher Airlines are assessing the possibility of liquidating non-core assets like real estate of the shrinking airline, the UB Group has shifted the ownership of a customised corporate jet used by promoter Vijay Mallya from Kingfisher Airlines to a group holding firm, says an Economic Times report today.
Banks have lent around Rs 7,000 crore to the airline and are now anxious to recover at least a part of the dues by selling some of the assets pledged with them. Though it does not seem as if all the loans are covered by collateral, they are in the process of valuing the airline’s non-core assets to see what they may ultimately get for their bad loans. Lenders have asked for a revaluation of the Kingfisher Airlines brand, which was pledged with them by the airline’s promoters in 2010 to raise Rs 200 crore in debt.
As part of this restructuring, the airline’s management has requested banks to liquidate some realty assets, including the Kingfisher House in Mumbai. ICICI Bank, the second largest lender to Kingfisher, has already unloaded its debt to a fund managed by SREI Infrastructure Finance .
According to the ET report, it is not clear whether the corporate jet A319, meant for exclusive use by Mallya, was hypothecated to banks. Sources, however, told the daily that that “the aircraft, valued at about Rs 107 crore as security, and helicopters valued around Rs 90 crore, are with banks as a guarantee.”
Kingfisher has accumulated losses of about Rs 6,000 crore. It has not paid employees’ salaries for months and has defaulted on tax payments and vendor bills. Even the airline’s lessors have taken back a number of planes because the company had reportedly defaulted on lease rentals. Its operations have reduced dramatically as it is flying less than 20 aircraft and its market share has crashed.
But Mallya, for reasons best known to him, is not looking at anything beyond foreign investment in aviation for a rescue, even though Kingfisher may not exactly see a queue outside its doors to buy a stake in it.
The reason why banks are still trying to humour him relates to the collateral he has pledged: shares of parts of his liquor business. As a Firstpost story noted earlier, “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.”
In a September 2011 report on Kingfisher Airlines, Canadian investment research firm Veritas had stated that both the airline and Mallya’s holding company UB Holdings (UBH) were effectively insolvent and that the two were at the mercy of Indian financial institutions.
Analysts have time and again said that the UB Group minus Kingfisher Airlines could well benefit the company’s cash cows. But the fact remains that in its efforts to support Kingfisher, the group pledged the shares of other group businesses such as United Spirits and now faces the risk of losing his only profitable business too— all thanks to his unexplained love for the airline.