In a last-ditch effort to survive, the Vijay Mallya-promoted Kingfisher Airlines has started discussions with foreign carriers to sell 26 per cent stake as soon as a policy framework is in place. According to persons in the know, Kingfisher has held discussions with IAG, the parent company of British Airways, and Etihad Airways, the flagship carrier of the United Arab Emirates, for a possible stake sale after the government allows foreign airlines to buy into Indian carriers. Foreign direct investment in aviation is not allowed currently but is expected to be cleared. Sources say once the civil aviation sector is opened up, Kingfisher intends to bring a foreign partner immediately.
The cash-strapped airline has debt of nearly Rs 7,000 crore, and most of its lenders have already classified the account as non-performing. Banks have rejected the airline’s request for further credit on the ground the company is yet to bring promoter’s equity contribution of Rs 400 crore as agreed while restructuring debt in December 2010. Bankers said the airline informed them it was in talks with some foreign carriers to bring in equity. Kingfisher’s immediate requirement from banks is about Rs 400-500 crore, which it intends to use to service existing loans so that they become performing assets again.
However, bankers are not convinced about how far the airline will be successful in bringing a foreign partner. In addition, the finance ministry is not supportive of any debt recast unlike the last time when a push came from the highest level, prompting banks to decide on the basis of a long list of collaterals, including a personal guarantee. The ministry is, however, pitching for a relaxation in the Takeover Code as that will benefit all sectors. The code requires an entity acquiring 25 per cent or more equity in a listed company to mandatorily make an open offer for another 26 per cent to ensure individual shareholders also get an exit route. In the case of airlines, that will mean a foreign airline can acquire up to 51 per cent stake, thus breaching the 49 per cent FDI cap.
IAG is one of the world’s largest airline groups, with 348 aircraft flying to 200 destinations and carrying more than 50 million passengers a year. Etihad has picked up stakes in troubled airlines across the globe recently.
Vijay Mallya and IAG did not reply to queries sent to them. However, IAG, in a reply earlier, had said, “As we have said before, the process to allow foreign airlines to invest in Indian airlines has not yet been fully approved, so it would be wrong to speculate about IAG’s interest in any Indian airline at this stage.” Etihad said, “We are always looking at opportunities if they make sense for our business, but we would never comment on speculation of this nature.”
Meanwhile, responding to yesterday’s report — Mallya says no to loan on personal guarantee — United Spirits has clarified it did not give any corporate guarantee on behalf of Kingfisher Airlines during the latter’s December 2010 debt restructuring.
Mihir Mishra & Surjeet Das Gupta
