Stuck with a brand valued 0, KFA lenders face huge write-off

Lenders to Kingfisher Airlines met yesterday to count their losses on the advances to the grounded airline, and according to a report in the Business Standard, found that there is unlikely to be any.

According to the report, Shyamal Acharya, SBI Deputy Managing Director, has put the value of the collateral, excluding the brand, around Rs 6,500 crore. The bank consortium’s exposure is Rs 7,500 crore, including the unpaid interest.

According to various news reports, the tangible collaterals include real estate properties (Chairman Vijay Mallya’s Goa villa, the company’s office in Mumbai), and two helicopters. Apart from this, there are corporate guarantees provided by United Breweries Holdings, and United Spirits shares pledged with banks.

But how true can Acharya’s claim be? Very little.

A report in the Economic Times said that the 17 banks in the consortium may be able to recover just Rs 1,500 crore and may be forced to write off the remaining. This is a much reliable figure than Acharya’s claim.

[caption id=“attachment_625088” align=“alignleft” width=“380”] Interestingly, Kingfisher brand value, which contributed the maximum to the total value of collaterals, has nosedived to the level of zero. AFP[/caption]

The value of collateral when banks gave the loan to Kingfisher was Rs 5,239 crore according to the report. Of this, Rs 4,111 crore was Kingfisher brand value, Rs 342 crore value of the promoters’ shares, Rs 118 crore value of real estate properties and Rs 90 crore value of twp helicopters.

Interestingly, Kingfisher brand value, which contributed the maximum to the total value of collaterals, has nosedived to the level of zero, according to another report in the BS.

According to the report, the valuation of the brand on Wednesday is zero, as against Rs 2,500 crore two years ago.

The report quotes N Chandramouli, chief executive, Trust Research Advisory, as saying that there is no trust left with the airline. Trust Research Advisory releases annual Brand Trust Report, a ranking of brands based on the trust they enjoy among consumers, said the report.

Kingfisher’spitiable fall from grace is clear as he says the airline does not figure in its list now while two years ago “it led the pack by a comfortable margin”.

The impact of the trust deficit on the brand is evident from the fact that nobody has come forward to buy a stake in the airline, despite Mallya trying to hard sell it over the last many months.

So banks may have to forget the brand value completely.

The value of promoters’ shares has also fallen to Rs 142 crore, the ET report said. The value of the real estate properties is dependent on the market and that of helicopters, though small considering the huge debt, will also have depreciated.

Above all, the company will have to pay its staff, including their provident funds dues, various taxes, private sector creditors and other dues towards oil companies, AAI etc, before repaying the bank loans.

It is to be remembered that the employees have not been paid their salary from May and their provident fund dues probably start much before that.

So in the end, what banks can lay their hand on is likely to be a very small amount.

Moreover, the recovery process is likely to be a long winding one for the banks due to likely litigations. According to the BS report, the guarantor for the loans, who has to pay up, can take legal recourse, thus delaying the process by years.

On the whole, the banks may have finally started off in the right direction, but the move came a bit too late.