Vijay Mallya, the chairman of Kingfisher Airlines, on Wednesday came out in full strength to assuage the nerves of his worried shareholders, in the wake of reports that the country's second-largest private carrier was facing financial turbulence.
Kingfisher has accumulated losses of Rs 5,000 crore, and is under a debt of Rs 6,000 crore on a negative net worth. Within one year, its share price has lost as much as 70 per cent.
Mallya gave a point-by-point clarification on some of the issues raised by the auditors in the latest balance sheet. The crux of the auditors’ report was how the issue of ‘going concern’ was interpreted by a large section of shareholders and on deferred tax credit, in addition to whether the promoters could infuse money to keep the airline flying.
“The auditors B K Ramadhyani & Co, have, in fact, concurred with the board of directors’ adoption of the going concern assumption in preparing the accounts, despite its eroding net worth, which is apparent from the balance sheet itself. As a matter of fact, the auditors on September 27, wrote a letter to me stating the audit report is not an adverse opinion in terms of our disagreeing with the management’s assessment of the going concern assumption,” Mallya said at the company’s 16th AGM here.
The decision to draw up accounts on a going concern basis, as also the treatment of the deferred tax asset is consistent with the findings of an independent evaluation of the company’s prospects conducted by bankers as directed by the Reserve Bank of India, he added.
“Indeed, the recast of the debt, consequent to which the banks have converted 30 per cent of their loans into capital was also executed keeping in mind the future profitability of the business and the possible upside in the value of the company’s shares,” Mallya detailed.
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On whether the promoters could inject more funds into the airline, Mallya said after the debt recast during December 2010, long-term funds amounting to Rs 500 crore had been infused and talks were on with lenders and other interested people to participate on the proposed rights issue. He further assured the shareholders that UB Holdings, Kingfisher’s parent, had provided the airline with corporate guarantees of Rs 9,000 crore.
Mallya later came down heavily on a recent report by Canadian research firm Veritas, which had said Kingfisher Airlines was on the verge of bankruptcy and its parent, UB Holdings, was on thin ice.
“We have never heard of this firm. They have not contacted us when they prepared the report, which is a standard practice. Veritas has not sent the copy of the report to us or to our institutional shareholders. They have just widely circulated only to some media. They have even miscalculated the duration of the lease of our aircraft,” he said.
He said though the situation is tough, the promoter group of Kingfisher Airlines has supported the airline through direct investment, advances from the holding company, guarantees from the holding company and also by securing third party funds to meet exigencies in Kingfisher.
"The total investment by UB Holdings till date in the form of shares is Rs 2118 crore. This includes a sum of Rs 745 crores which was converted, alongside the banks into preference shares and thereafter into ordinary equity shares at the SEBI specified price. Besides this, UB Holdings has also procured third party finances from associates by way of optionally convertible debentures amounting in all to Rs 710 crore," he said.
"Each of these primary obligations is supported, in the first instance, by Kingfisher's assets and cash flows. UB Holdings guarantees are by way of additional collateral to further stregthen the promoter's commitments. I have also personally stepped into provide a third level of comfort to the lenders who have been extremely supportive of Kingfisher," he added.