Tuesday, May 21, 2013

Banks recall KFA loans, may encash Mallya’s securities

New Delhi/Mumbai: After waiting for almost a year, lenders led by State Bank of India on Tuesday decided to recall loans given to Vijay Mallya’s Kingfisher Airlines and encash shares that have been pledged with banks as collateral.

Subsequently, if loans adding up to Rs 7,500 crore and overdues of over Rs 1,000 crore are not repaid by the flamboyant businessman, who often drew comparisons with Virgin’s Richard
Branson, lenders will encash other securities, including Mallya’s personal guarantee and property. Already, banks are in the process of selling his villa in Goa to recover part of the dues.

Lenders will set up a subgroup that will look at the legal aspects of selling the shares, said a banker. A loan recall is an extreme step when banks are convinced that there is nothing that the promoter can do to revive a sick company. In Mallya’s case, the wait has been longer. With no end in sight, 17 banks that have exposure to the airline, once the symbol of luxury in the skies, finally decided to take the call at a meeting on Tuesday.

“The guarantees are in excess of loans outstanding. The personal guarantees will be invoked along with the loan recall. The recall process will include legal action against Mallya and Kingfisher Airlines,” a bank executive said.


  • Kingfisher Air’s debts and other exposures add up to - 7,500 crore
  • Overdue payments to banks amount up to - over 1,000cr
  • If KFA is unable to settle lenders’ claims, banks may start encashing securities, including Mallya’s personal property

Shares owned by Mallya that are pledged to banks may be the first to be encashed End of road for Kingfisher Airlines?
New Delhi/Mumbai: The SBI-led consortium of lenders to KFA were disappointed that there was no proposal by Vijay Mallya to bring in substantial capital, which they had earlier hoped would happen after the liquor baron sold a big chunk of his business to UK’s Diageo. He said the banks could take legal opinion on how to deal with the Kingfisher brand which forms a major chunk of the collateral offered by the airline. Kingfisher—which Mallya launched as a gift for his son on his 18th birthday-—has been unable to come up with a feasible plan to restart operations, and its lenders’ consortium has decided that it is difficult to sustain the loan in such a situation, SBI deputy managing director Shyamal Acharya said.

While airline executives did not answer calls, Kingfisher CEO Sanjay Agarwal continued to put up a brave face. “Mr (Vijay) Mallya has assured salary payments, and we are currently working on a plan to fly again in the summer schedule,” Agarwal was quoted by a TV channel.

But the writing on the wall was clear for KFA which had stopped flying from October last year and did not have any slots in the winter schedule prepared by the Directorate General of Civil Aviation (DGCA).

Without a licence, it would be impossible for the airline to be part of the summer schedule that the DGCA is shortly finalizing.

“It is almost the end of the road for Kingfisher. The Airports Authority of India has already decided to give KFA’s slots to any airline that wants them. Now, even the private metro airports will do the same,” said an aviation official.

For Mallya, the pressure has been mounting as he has not paid salaries to employees. In fact, the wife of a Kingfisher employee committed suicide citing financial stress due to non-payment of salary. Besides, the “king of good times” has not deposited service tax collected from travellers and there are income tax arrears. There are arrears to oil companies as well as airport operators.

The financial woes have also impacted the bankrupt airline chief, prompting him to sell a stake in flagship United Spirits to Diageo in a bid to get much-needed cash. He even offloaded shares in Force India, his Formula One team, to Sahara.

But his personal lifestyle has not shown any dramatic change and despite not paying salaries and repeatedly defaulting on payments, Mallya has been visiting temples, including Tirupati, where he offered 3kg of gold.

Under pressure to keep the airline sector afloat, the government even changed rules, including allowing foreign carriers to buy 51% stake in Indian entities. While Jet Airways and Spice-Jet are close to tying up deals, Kingfisher has not been able to make much headway.

Vijay Mallya had agreed to provide a long list of assets as security while finalising a loan restructuring in 2011. Now, banks will enchash these securities to recover the dues
Assignment/ hypothecation of ‘Kingfisher’ brand First charge on fixed assets, including equitable mortgage of Kingfisher House in Mumbai Equitable mortgage of Kingfisher Villa, Goa Mallya’s personal guarantee Corporate guarantee of United Spirits Escrow of credit card receivables, cash collections Non-disposal undertaking on 11 lease/ hire purchase aircraft Hypothecation of two helicopters

Pledge of shares by promoters

First charge on 2.6 million United Spirits shares and 10 million shares of Mangalore Chemical & Fertilisers that are pledged to SBI

Extension of charge on entire current assets
Maintenance of account servicing up to three months interests and instalments from Oct

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