The United Breweries Group will be unable to use any proceeds from a possible stake sale in United Spirits to infuse funds into Kingfisher Airlines, the debt-laden airline's promoter Vijay Mallya said in a presentation to its lenders.
While United Spirits has confirmed that it is indeed in talks with UK-based peer Diageo Plc for a possible stake sale, Mr Mallya said United Spirits is over leveraged.
Kingfisher Airlines is in talks with domestic and private investors, including private equity firms, for a fund infusion, Mr Mallya reiterated, adding that there has yet to be a concrete plan.
The lenders' meeting ended inconclusively, with the next meet scheduled for end-October, when the lenders will decide on the sale of Kingfisher Villa, Kingfisher House and other assets.
SBI Caps has been asked to put together numbers for a plan to smoothly run operations within 2-3 weeks, but no official manadate has been given to SBI Caps.
SBI has the maximum exposure to the airline at Rs. 1,400 crore. As many as 17 banks, led by SBI, have an exposure of more than Rs. 7,000 crore in advances to the carrier, which has not serviced its debt since January and has not paid salaries since March 2012, forcing its pilots and engineers to strike several times in the past five months.
Apart from this huge debt, the carrier has also an accumulated loss of more than Rs. 8,000 crore, and hasn't posted a profit since it was founded in May 2005.
According to its 2011-12 annual report, the airline's net loss more than doubled to Rs. 2,328 crore in 2011-12 from Rs. 1,027 crore in the previous year. Its total long-term borrowings stood at Rs. 5,695 crore as on March 31, 2012, while short-term borrowings rose to Rs. 2,335 crore at the end of 2011-12.
Lenders have asked Mr Mallya to come up with concrete plans for restarting the airline's operations.
Yesterday, at the annual general meeting of Kingfisher Airlines, Mr Mallya said his company was in talks with foreign carriers for a possible stake sale. Mr Mallya has been scrambling to raise funds for his debt-laden airline for nearly a year now. Kingfisher has about $1.4 billion of debt (Rs. 7,462 crore; $1 = Rs. 53.5).
The government recently expanded the rules on foreign direct investment in the aviation sector by allowing foreign airlines to own up to 49 per cent in domestic carriers. No airline has publicly expressed interest in taking a stake in Kingfisher Airlines so far.
"FDI in aviation (the rule) came only ten days back... we are making all efforts to recapitalise with partners. Domestic investors are showing more excitement because foreign carriers have shown interest in investing," Mr Mallya said at the meeting.
The company's lenders have been putting pressure on Mr Mallya to bring in capital to revive the carrier. The airline, which was until last year India's number two by domestic market share, is now the smallest among the six main airlines after grounding most of its fleet.
"Every airline is struggling so it was prudent to cut back capacity to contain losses. It is absolutely untrue that we are flying only seven aircraft. We have 40 aircraft and we are looking for recapitalisation to put the remaining 25 aircraft back in air," Mr Mallya said in response to a report in a local daily today, which noted that Kingfisher's fleet had shrunk to just seven from 66 in October last year.
The airline owes Rs. 60 crore in service tax dues. "Kingfisher Airlines continues to be a defaulter and has an outstanding of over Rs. 60 crore. It is defaulting on the weekly payments and most of its bank accounts are frozen," Mumbai service tax commissioner Sushil Solanki said.
The service tax department has frozen almost all the accounts of the ailing airline, which is now operating a skeletal schedule due to drop in services. This makes payment of dues very difficult because cash flows are down to a trickle.
Kingfisher has not been depositing service tax collected from passengers with the department since November 2011, diverting these funds for other purposes on a regular basis.
Earlier, SBI chairman Pratip Chaudhuri said, "(Vijay) Mallya is keen to keep control of Kingfisher... So the sense we have from him is that he is willing to do everything possible, including big sacrifices." However, he also said the bank had no specific details on a reported sale of a stake in United Spirits.
Mr. Chaudhuri said the lender was “waiting for Mr. Mallya to come up with concrete action plans”, and hoping that he would do “everything possible to keep the Kingfisher brand alive”.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
