Govt-led bailout unlikely, indicate FinMin, bankers.
Lenders to the Vijay Mallya-promoted Kingfisher Airlines will meet tomorrow to discuss if additional funding could be provided to the airline which has run into more financial turbulence.
State Bank of India, leader of the consortium of 13 banks, has called a meeting with the other lenders, which include ICICI Bank, Punjab National Bank, Bank of Baroda and IDBI Bank. Bankers said the meeting was expected in Bangalore.
The airline may ask for additional working capital loans to tide over the current cash crunch, bankers said.
A senior State Bank of India official said the company was servicing its loan by paying interest. However, banks are constrained in doing anything more. “We have already provided life support in the form of restructuring of loans earlier this year,” the official said. The consortium meeting comes at a time when Kingfisher has to pay Rs 1,000 crore to its vendors and key lessors, which have dues of $50 million (Rs 250 crore) and are threatening to take back some of their planes.(Click here for table & graph)
The growing financial problems of the airline also impelled the government to intervene.
More From This Section
Civil aviation minister Vayalar Ravi on Friday said the finance minister may meet banks on helping the airline. “Mr Mallya met me and discussed the problems. The fuel rates are high and the states should also come out and rationalise their taxes,” said Ravi. He added: “I have discussed the issue with the finance minister and he may talk to the banks.”
Consortium bankers said more restructuring (already done once in April to bail out the airline) may not be possible as banks would have to classify the assets as non-performing if further debt recast took place.
According to bankers, the finance ministry backed their stance as it was of the view the promoters needed to infuse capital. Kingfisher had proposed a rights issue, which the banks declined to subscribe to. A senior finance ministry official told Business Standard the government was not in favour of bailing out private airlines. "Any project has to be commercially viable. Banks will have to decide (about restructuring) on a commercial basis."
Bankers said the Reserve Bank of India was unlikely to provide any leeway to the banks if loans were restructured. Banks' total exposure to Kingfisher is close to Rs 7,000 crore, of which around Rs 4,000 crore is in the form of term loans. The company's key lessors include AerCap, AWAS, ACG and Fly Leasing.
A spokesperson for AerCap said in an email, “Yes, we have leased aircraft to Kingfisher but we do not comment on client issues.” The GMR group, which operates the Delhi and Hyderabad airports, has more than Rs 90 crore overdue with Kingfisher. GMR executives say the airline has promised to pay them some of the dues.
On the fourth day of its partial withdrawal of flights, Kingfisher Airlines saw the cancellation of more than 50 flights. The airline is not operating 36 per cent of its total flights allocated for the winter schedule.
However, Kingfisher executives say there is no serious crisis. “We are in advanced discussions with banks for supporting us further to the extent of Rs 300 crore for working capital requirements to tide over the immediate crisis,” said a UB group board member.
A senior finance executive of the airline said it had asked lessors to cut down on lease rentals by 10 per cent on average. An email on other issues did not elicit any reply.
The airline's share price on the Bombay Stock Exchange closed at Rs 19.65 on Friday, a fall of 9.45 per cent over the Thursday close, after touching a new of Rs 17.55. The conversion of debt into equity in April was undertaken at a 35 per cent premium to the then prevailing market price. Based on Friday’s price, the value of the banks' shares has eroded further. They paid a nearly 228 per cent premium for equity in the company based on on Friday’s price.
“Banks now have to look at the airline's new strategy to become a full-service carrier and see whether it is financially viable,” said Amrit Pandurangi, senior director at Deloitte Touche Tohmatsu.