A K Ravi Nedungadi, president & chief financial officer, UB Group, has had a tough week. First, it was the auditors of Kingfisher Airlines who raised the flag on how operations could continue if the promoters did not raise more equity at the earliest. Subsequently, Veritas Research tore into the airline and its parent, UB Holdings, stating both were on the verge of bankruptcy. Nedungadi, in an interview with Raghuvir Badrinath, says while there is indeed an urgent need to infuse equity into Kingfisher, there are other ways to address this issue till the markets stabilise. Edited excerpts:
It’s been under a year since you moved on the debt recast of Kingfisher Airlines (KFA). Recently, you enabled Kingfisher to raise equity through a rights issue, but the markets are not conducive for such a move. Isn’t time running out for infusing equity?
I am not denying that there has to be an infusion of equity…there is no doubt about it. However, infusing equity through share capital is not the only way. We can look at many other ways to sweat more from the equity already infused. For example, we have 12 aircraft (A-320s & ATRs) on financial lease. We have some realty assets worth anywhere Rs 80-100 crore. If we can sweat these two assets itself, it will easily fetch us Rs 300-400 crore, which will help us sail until sentiment turns to the positive in the marketplace for a possible rights issue.
We are taking additional steps on operations, with which we can work down some debt. However, this argument does not at all take away the urgency and importance of infusing equity. There are still a few investors interested in airline stocks. As we see, there is some positive post-monsoon data coming through and, hopefully, by the end of calendar 2011, the sentiment may change and we can time the issue. The recent move for rights is an enabler, so that we are ready when there is a marked change in sentiment.
But with the KFA stock price at Rs 25 a piece, will it not mean a heavy dilution for the promoters?
We should not be evaluating based on just market capitalisation of the company. We fly 380 flights daily, touch a vast number of places and have close to 20 per cent market share in India. Does this all mean nothing? Recently, an independent research firm did a study on our brand value and it was around Rs 4,400 crore, or around $1 billion. All these will have to be taken into consideration when a company offloads stake.
With so much flux in the markets and finite limits on how much you can fine-tune operations, do you think a strategic partner picking up stake in KFA is an option?
I have always followed a never-say-no attitude. However, while many overseas players are keen to have an equity pie in the Indian civil aviation sector, they are currently not allowed. With respect to the Indian corporates, if there is a good proposal and it fits strategically with our game plan, we may look at it. However, we have not got any such proposal so far.
Do the recent reports by your auditors and the research report unnerve you as you steer the company through a tough scenario?
The auditors are doing their job and regarding the analyst report, I would say it has not been able to capture the actual picture. First, it is incorrect to say that the auditors have raised serious doubts about survival of the airline. During 2010-11, the Reserve Bank had directed banks to independently assess the viability of KFA and this was carried out by the lenders, with the assistance of SBI Capital Markets, confirming that KFA was viable i.e. as a going concern. On the auditors’ observations about the company’s ability to infuse funds, since the start of the year, long-term funds amounting to Rs 475 crore has been infused.
The research report from Veritas arrives at some conclusions on erosion of net worth, based on some wrong understanding. For example, People Acting in Concert with the promoters of Kingfisher Airlines have agreed to convert their Rs 700 crore debt into equity through optionally convertible debentures. But the analyst report still considers this debt. I cannot fathom how this can happen. In addition, the report does not exactly understand how aircraft leases are structured. While the report says we have an unbreakable lease for 12 years, the actual practice is to have a lease for five to seven years. If we can take these two into consideration, KFA is not equity-negative.