A possible end to the two-year-long Kingfisher saga is visible after the SBI-led consortium of lenders decided to recall loan given to the troubled airline. Most analysts were expecting the banks to take this drastic step and say the focus now will be on liquidation of assets. The Kingfisher stock took a severe beating on Wednesday.
Seventeen banks have an exposure of Rs 7,000 crore to Kingfisher Airlines, in which SBI's share of Rs 1400 crore is the largest. Some of the other banks with exposure to KFA are Bank of India (Rs 575 crore), IDBI (727 crore), Punjab National Bank (Rs 710 crore) and Bank of Baroda (Rs 530 crore).
SBI officials say banks have given enough time to Kingfisher to repay its dues but the Vijay Mallya-led company had shown little efforts in reviving the airline. The fact that Kingfisher could not provide concrete tmeline for its revival plan had upset all the lenders. Kingfisher had stopped flying since October 1, 2012 after a series of strike hit operations. The airline's flying licence has been suspended by the aviation regulator.
In a CNBC-TV18 interview, SBI's Deputy Managing Director Shyamal Acharya said he was expecting some amount of recovery in this quarter itself. He said the consortium has the shares of United Spirits as collateral which is valued at Rs 6,500 crore. This does not include the Kingfisher brand. It may be recalled that Kingfisher Airlines Chairman Vijay Mallya has given personal guarantee for the loans and Acharya is prepared to go to court to process personal guarantee collaterals.
"Personal guarantee basically covers the entire personal wealth of the guarantor. If somebody gives a personal guarantee for a loan and if that loan is not repaid then the guarantor becomes liable to repay the loan - that is how it works."
Acharya said SBI has provided for 95 percent of total Kingfisher loan exposure. About 25 percent of SBI's total loan exposure is towards Kingfisher.
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Go to next page and read the edited transcript of Archarya's interview.
Q: Can you immediately raise some money from any of the pledges or collateral that is lying with you from the UB Group? What kind of collateral or pledges you own in Kingfisher or the group stocks and whether there is any plan immediately to release some money from those assets?
A: We have the pledge of United Spirits shares, but this is all a part of the recovery process. Again a small group of lenders have been constituted who will look into all these aspects for sending the call up notice and to see how fast some of the securities can be realised including United Spirits. So, those are the matters that a small team will look into. They will be meeting today itself to finalise the course of action.
Q: You have been waiting for a long time. Obviously, Kingfisher promoter has not been able to cough up the money. Can you atleast tell us how much you could potentially recover from the pledges and assets that you own from the group?
A: If we include the value of the guarantees of UB Holdings, the holding company, the personal guarantee of Dr Mallya, then the value of the collateral available will be around Rs 6,500 crore. I am not including the value of the Kingfisher brand. Against total due of Rs 7,000 crore to the system, which includes around Rs 850 crore for unapplied interest - we have total collateral value at Rs 6,500 crore excluding the value of the brand.
Now it is a process of recovery which is a legal process. The team will look into it. Yes , we have waited long because in these sorts of transactions, big loans, one has to give as much time possible to the borrower, which we had given. Now, since they could not come up with any plans for either flying the airlines or putting some money on the table - that is why the consortium decided yesterday to recall those advances. Now, the legal process will follow.
Q: Any timeline though that banks have in mind in terms of liquidation of assets and recovery of some of these loans because one would want to gauge by which quarter some of that leaf may show through for a bank like yours?
A: It is very difficult to give a timeline to all these things because these are all legal processes. We expect that there should be some recovery, some realisation at least from the sale of shares during this quarter itself.
Q: Kingfisher Airlines' management sought more time in this meeting as well. What was the response to that and what exactly does the personal guarantee in specific amount to? What is that amount?
A: They asked for some more time but they could not really give a very concrete timeline by which they can come up with very specific plans. So the consortium felt that there was no point in considering giving them more time. Coming to the personal guarantees, personal guarantee basically covers the entire personal wealth of the guarantor. If somebody gives a personal guarantee for a loan and if that loan is not repaid then the guarantor becomes liable to repay the loan - that is how it works.
Q: All that might require a process of litigation which is time consuming. The easy low hanging fruit is the shares that you possess in collateral which you can sell in the market and release cash against the Rs 1,400 crore loan. Give us some idea of what these exact shares are, whether it is UB Holdings, Kingfisher Airlines. How much can you actually sell in the next few weeks and book or recover in the current quarter?
A: We have shares pledged to consortium of United Spirits Limited. We also have some shares of Mangalore Chemicals and Fertilizers. These shares are the low-hanging fruits. So, this should be the first line for us to recover the money which the small group of lenders will look into it. We also have some residual charge on certain shares which are pledged with SREI, which were sold to SREI by ICICI Bank. That is also something which can give us some quick results. These are the two things which we will try to recover as fast as possible. It is definitely a matter of legal process which can take its own time but that’s the other part of it.
Q: Would these sales be in the open market or would you be approaching Diageo to pick up any stocks related to United Spirits? Considering they are the primary shareholder in that company now which will bypass the need to sell in the secondary market therefore impacting the price.
A: These are the issues which the small group will look into today. These are very technical issues. So, that is why a small group has been constituted which will sit today to decide which way it will be best for the banks to recover as much money as possible.
Q: At current market price, what do you hold in terms of United Spirit shares and Mangalore Chemicals in terms of number of shares? What it would amount to in rupee crore?
A: In rupee it should be around Rs 500 crore.
Q: For both of them put together?
A: Yes, both of them put together.
Q: Is this a decision that all banks have come to? We understand that all banks have decided to take decision on their own accord. Is there an agreement on the fact that most would look to sell some of the collateral shares they maybe holding in some of these UB entities?
A: No bank individually holds any collateral shares. It’s a consortium. So, there is a security trustee who holds a security on behalf of all the lenders. All the banks unanimously agreed that it is time to recall the advances. Then each bank will go to its board to take the necessary approval. However, actual recovery of the securities - it is all in the name of a security trustee on behalf of the lenders. So, there is no individual bank that is holding any particular security except the lenders who have given the money outside the consortium arrangement.
Q: What about the personal guarantee of Vijay Mallya. How complicated is the legal process? Do you think that because he has given a personal guarantee you can go to the court and ask Vijay Mallya to sell shares that he owns in United Spirits to be able to repay the banks? Is it an easy process to get money out of a personal guarantee or a time consuming legal process?
A: It is definitely not an easy process. It is a legal process. We have to go to the court to invoke the guarantee and the legal process will follow.
Q: You also spoke about a charge that you have on the United Spirits shares worth Rs 400 crore plus that SREI Infrastructure has picked up. What is the amount of that charge that you have against those shares? Have you established contact with SREI on whether they are going to sell that stock down in the market?
A: SREI representative was also present yesterday in that meeting. The SREI outstanding is around Rs 436 crore, while the value of the shares which SREI is holding is around Rs 900 crore. So, some Rs 450 crore will be the residual value. We have residual charge on those shares. SREI was present there. We have requested SREI representatives to sell it as high as possible as a fiduciary holder of the shares taking into account the interest of the second charge holders. So, I am sure as a member of the financial fraternity, they will do that. However, after adjustment of their dues also, some Rs 400-450 crore of value should be available from those shares.
Q: One question specific to the bank itself. The observation seems to be that this move has come on the back of getting closer to the end of the financial year and recovering some dues from banks such as yours. Will you be looking to take a similar decision on some of your other large outstanding - companies like Suzlon or some of the other SMEs?
A: I wouldn't say that this has been done just because it is fourth quarter and the year -end. It is a normal process which we have followed and it is coincidental that it is happening in the last quarter of the year. So, it is definitely not because of the year-end. About other accounts, Suzlon, has gone to CDR, so the CDR process has been initiated. There is no question of calling up the advances in Suzlon at this stage. Other accounts, each case has its own way, own status, own stage. So, you cannot really say one size fits all.
Q: It has been a long period of giving extended timelines to the Kingfisher management and they asked for more time yesterday. Are you getting the sense that the consortium of banks has headed into a very bitter legal fight? Did the meeting end on a more cordial note in the sense that Kingfisher was willing to accept and accommodate the wishes of the banking consortium?
A: I would not say that the meeting ended on a very cordial note, because after all when a consortium decides to recall the matter, it can never be on a very cordial note. These are professional matters. We are all professionals. We heard them out and then the consortium again sat together to decide what should be the course of action. That is how it is.
Q: Of the Rs 1,400 crore loan exposure that SBI has directly to Kingfisher, how much have you provided for already? If you do manage to sell some stock as you indicated this quarter, would it cover up all part of the un-provided for exposure or could there even be write backs?
A: Out of our total exposure, we have provided around 95 percent already. So, that way our position is pretty comfortable and strong. Whatever is recovered, as you know, it will come to the pool, because it’s a pool of securities and it will be shared among all the consortium members according to their percentage share in the consortium. Our percentage share is 25 percent so whatever is recovered, 25 percent should come to us.
Q: Is this also a sign that public sector banks, because of the sticky asset quality situation this year will start talking in more aggressive tones? Kingfisher is the first of them and it will not be the cozy Corporate Debt Restructuring (CDR) kind of situation which public sector banks have been doing for the last many quarters, because that is something that even the regulator is beginning to frown on?
A: One size does not fit all. I will not say that it is a pattern. Kingfisher is a case by itself where we had given enough time. There was a restructuring earlier also which did not take off. So, having waited long, the consortium has taken this decision.
We have to decide each case on its own merit. It definitely should not be taken as a pattern. I wouldn’t agree that there is an issue of cozy relationship and that sort of a thing because CDR is an established mechanism. When a particular company on the basis of a Techno Economic Viability (TEV) study is considered to be viable, only the the banking system goes to do a CDR rehabilitation package for the company. After all, the assets have been created and recovery should always be the last measure which the bankers should take when all other efforts fail.