Kingfisher promoters open to reducing stake to 26%

The promoters of Kingfisher Airlines are open to reducing their stake to 26 per cent to strategic domestic investors, from the current 58.61 per cent.

Ravi Nedungadi, UB group's president and chief financial officer, told Business Standard the 'promoters are willing to pare their holdings on the same lines as the recent Force One deal with Sahara and the UB Group deal with Heineken signed in 2009'.

This means the promoters are willing to give equal shareholding to an Indian entity, talks for which have already been initiated.

While UB group and Heineken together hold 75 per cent stake in United Breweries (37.5 per cent each), UB Group chairman Vijay Mallya and Sahara India both own 42 per cent stake each in Force One, which is a Formula 1 racing team.

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At a press conference on Tuesday, Mallya said Kingfisher Airlines was in talks with Indian investors and private equity players to buy into the airline.

He refused to divulge any further details. 

Mallya, however, emphasised he had not sought any bailout package from the government or banks.

"We have not asked the government to dip into taxpayers' money. I have also not asked banks to take a haircut or restructure loans," he said.

His proposal to banks is threefold. First, a Rs 700-800 crore (Rs 7-8 billion) working capital loan and term loan to tackle rising fuel costs and reconfigure the fleet.

Second, the airline has asked for a mechanism by which close to Rs 1,200 crore (Rs 12 billion) of high-cost rupee debt can be converted into foreign currency loans that attract lower rates.

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And third, Kingfisher has Rs 1,000 crore (Rs 10 billion) locked up as deposits with his aircraft lessors.

 The management has requested the banks to convert them into letters of credit, which are cheaper, so that the cash can be freed and rerouted to prepay expensive rupee loans.

To balance its high debt of Rs 6,500 crore (Rs 65 billion) with equity, Kingfisher is also going ahead with its plans to raise up to Rs 2,000 crore (Rs 20 billion) by the end of this financial year via a rights issue.

Parallel to that, Mallya said he was in talks with Indian investors and PE players to buy into his airline, but refused to divulge details. 

Despite statements made by his leading lenders, Mallya clarified banks had not officially told him to infuse additional capital.

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The airline's officials noted the UB Group's business associates from the flagship liquor business had already pumped in close to Rs 763 crore (Rs 7.63 billion) this year alone in the form of unsecured loans.

Of that, around Rs 150 crore (Rs 1.5 billion) had come in the past one week.

These associates acting in concert with the promoter had earlier chipped in with Rs 709 crore (Rs 7.09 billion) by subscribing to the company's optionally convertible debentures.

"If there is a requirement of recapitalisation or infusion of additional equity, we will consider it," Mallya added.

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Considering the challenging macro environment of a weak rupee, boiling crude oil prices and lack of investor confidence, Mallya urged the policy makers to open up the Indian skies to foreign strategic airline companies.

"I am an avid supporter of FDI. I see no reason why foreign strategic investors should be banned.

"A general investor may not be keen on investing in aviation. Even in greenfield airports, we allow 100 per cent FDI," he said.

Crude prices, which have gone up by 50 per cent in the last two quarters, coupled with ad-valorem state taxes have also forced the airline to request the commerce ministry to allow direct import of aviation fuel.

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Taxes make jet fuel in India 60 per cent more expensive than the global average.

The carrier, which has never turned a profit since its launch in 2005, saw its fuel bill jump 70 per cent in the September quarter from a year earlier.

The UB Group chairman said Kingfisher had brought down the dues to oil marketing companies and given bank guarantees to cover bills from Hindustan Petroleum Corporation, and all other vendors would continue to provide supplies and services.

"Fuel costs account for over 50 per cent of the operating cost, which gets increased due to the sales tax charged by various state governments," Mallya added.

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He defended the decision to stop flying on unprofitable routes, a move that faced serious regulatory and consumer scorn throughout last week.

"We cancelled flights not because we couldn't afford to fly," he said. "We cannot, as a private company, afford to fly on routes that are heavily loss-making. We are not in the same arena as the national carrier."

The decision to phase out Kingfisher Red was also a strategic one as the earnings from the no-frills segment had been lower than its full-service peer.

"With capacity addition taking place in the low-fare market, we believe the bloodbath will be at the bottom end," Mallya said.

Instead, the airline is now focusing on reconfiguring aircraft earlier used for the no-frills services of Kingfisher Red.

The exercise will help with incremental revenue.
Kingfisher, which announced its results for the September quarter, said its losses doubled to Rs 469 crore (Rs 4.69 billion) from Rs 231 crore (Rs 2.31 billion) in the year-ago period, the biggest since the March 2010 quarter.

While passenger revenue rose nine per cent, the revenue per average seat km fell 16 per cent from a year even as the cost per average seat km rose eight per cent.

However, the airline's stock ended the day on a higher note, up 2.34 per cent, defying a market sell-off that saw the Sensex go down 1.38 per cent.