Will reducing its stake to 26% take Kingfisher from red to green?

The flamboyant owner of cash-strapped Kingfisher Airlines, Vijay Mallya, may have managed to allay investor fears on Tuesday when he said that the “phasing out of Kingfisher Red was misconstrued as shutting down a part of the airline” and was untrue. But, with the carrier’s reported net loss of Rs 469 crore ($93 million) for the quarter ended 30 September, his own troubles are far from over.

And Mallya, the astute businessman is no man’s fool.

Mallya took over from his father Vitthal Mallya, as chairman of the United Breweries Group in 1984. UB today sells 60 percent of the spirits consumed in India and most of the beer. He established Kingfisher Airlines in 2005 and it is India’s second-largest carrier by market share. Mallya also co-owns India’s first and only Formula One racing team, Sahara Force India, sponsors East Bengal and Mohun Bagan football clubs in Kolkata and is the owner of the Indian Premier League’s cricket team, Royal Challengers Bangalore .

So, it is no surprise that while the company has asked banks for additional working capital, it has also initiated talks with Indian investors and private equity players to buy a stake in the debt ridden airline, while the promoters of the carrier may reduce their stake to 26 percent , from the current 58.61 percent.

Kingfisher is promoted by the UB Group, which owns United Spirits, India’s biggest liquor company.

The UB Group’s president and chief financial officer, Ravi Nedungadi, told Business Standard that the “promoters are willing to pare their holdings on the same lines as the recent Force One deal with Sahara and the UB Group deal with Heineken signed in 2009” - effectively willing to give equal shareholding to an Indian entity.

The UB Group is also expected to convert Rs 675 crore of debt into equity as part of the plan to pare debt, according to the Economic Times.

“The preferential issue of equity, if approved, will replace a rights issue of Rs 2,000 crore approved by the board in August. Once these plans are approved, Kingfisher will approach banks for up to Rs 500 crore of working capital to buy fuel and pay salaries,” the Economic Times quoted people familiar with the matter as saying.

The State Bank of India, the lead lender in a 13-bank consortium has asked the carrier’s owners to inject Rs 800 crore ($160 million) in equity.

Mallya had on Tuesday said the airline would raise capital. “We are not shying away from capital raising,” he said.

Earlier last week, the management of the airline, had cancelled 200 flights leading to fears that it was close to bankruptcy.

“To write the epitaph of Kingfisher airlines repeatedly, is not fair” Mallya said on Tuesday.

But, following the carrier’s net loss having doubled from Rs 231 crore in the year-ago period to Rs 469 crore ($93 million) for the September quarter this year and its deep debt troubles, it remains to be seen whether Kingfisher manages to raise the equity it requires and more importantly stay off the red.

If it does, it may well then be a Phoenix rising from the ashes.

Watch Vijay Mallya in a video interview with CNBC-TV18