KFA fails to assure banks, next meet by Oct end

Saikat Das
moneycontrol.com

Vijay Mallya owned Kingfisher Airlines (KFA) failed to assure its lenders with any 'concrete' solution for restructuring of debt in a meeting held on Thursday in Bangalore. The consortium of banks now decided to hold a meeting by the end of October without any participation from the airline company. Bankers have been asking for an equity infusion as a part of recast scheme for the company's total loans of around Rs 7,000 crore.

Also read:BSE lowers stock circuit limits for Kingfisher, UB Holdings

Restructuring is the process when a borrower fails to repay its loan in time and asks for some relaxation of original terms and conditions.

"Nothing concrete has come out of the meeting. The option of bringing money from United Spirits (a group company) to KFA is also ruled out. That is considered to be overleveraged. Diageo would not be routing funds to KFA through that window. The only way available is through foreign direct investment," a banker with the direct knowledge of the meeting told moneycontrol.com on condition of anonymity adding that the promoter has sought a fresh loan from each bank.

Moreover, Mallya informed banks that KFA was in talks with some foreign entities to avail the FDI route. The government has recently allowed 49% FDI in aviation sector. At the same time, he mentioned about bringing in private equity (PE) funds. He is also in touch with some PE players. SBI Cap is advising the entire restructuring process.

Liquor firm United Spirits was reportedly in talks to sell a stake (held in Whyte & Mackey, its Glasgow-based subsidiary) to UK-based Diageo Plc, the world’s largest distiller and the maker of Johnnie Walker Scotch whisky and Smirnoff vodka. The sale proceeds, as it was perceived, would help Mallya raise funds for the debt-ridden KFA.

The consortium of lenders included around 17 banks. State Bank of India (SBI) alone has an exposure of Rs 1,500 crore to KFA. IDBI Bank has one of Rs 727 crore, Bank of India has Rs 575 crore and Bank of Baroda has Rs 537 crore. Recently, ICICI Bank sold its entire KFA exposure of Rs 430 crore to Kolkata-based Srei Infrastructure Finance.

Most of the banks have already shown KFA as sub-standard asset - a category of non-performing assets (NPAs) and made the necessary provision for it. A loan account turned sub standard when it stops repaying for 90 days. Banks have to categorize the same account as doubtful, another level of NPA, if it does repay for one year. 

"Nothing is clear at this point of time from the KFA side. Banks, which have already provided for the majority of KFA loan, may ultimately sell of the properties pledged against loans and write it off the entire account," said a person associated with loan restructuring activities.

Meanwhile, RBI asked banks not to use the KFA brand as collateral. In that case, the nature of loan will turn 'unsecured' loosing 'secured' status. It raises the provisioning requirement to 100%.

saikat.das@network18online.com