Kingfisher lenders left in the lurch

Lenders to Kingfisher Airlines have been left in the lurch, with most hoping the airline resumes operations, as this would ensure at least some revenue flow.

Business Standard spoke to ten of the airline's lenders. Bankers claimed though the loans were backed by collateral and guarantees, they had little option to either sell the assets or securities, or invoke guarantees.

State Bank of India (SBI) Managing Director (mid-corporate) S Vishwanathan said banks were already prepared for contingencies such as temporary suspension. He, however, added the last thing the airline needed was a complete shutdown.

"We would like the airline to resume operations and repay the debt," he said. With an exposure of about Rs 1,500 crore, SBI is the leader of the 17-bank consortium of lenders to Kingfisher Airlines. The consortium's total exposure to the airline stands at Rs 7,000 crore.

In November 2010, the airline's loans were restructured, under industry dispensation. However, Kingfisher began to default on payments, with its loans turning non-performing assets for most lenders in the third and fourth quarters of 2011-12.

As part of the restructuring package, part of the debt (about Rs 750 crore) was converted into equity. In March 2011, Kingfisher issued about 116 million shares (of Rs 10 each) at a price of about Rs 64 per equity share. These shares had a lock-in period of a year.

On Monday, the Kingfisher Airlines stock closed at Rs 10.9 on the BSE, a fall of 4.8 per cent.

A senior Vijaya Bank official said as part of the restructuring, the bank had received shares. However, the stock price plunged, forcing banks to make provisions for erosion in the value of the shares.

Indian Overseas Bank has an exposure of about Rs 100 crore to the airline in the form working capital finance. As of now, the bank is treating the loans as standard assets.

A senior bank official said though the prospects of a recovery were dim, seeking a legal recourse wasn't wise, as this could be a long-drawn process. The bank may have to make provisions for the entire loan amount in the quarter ending December.