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Corporate Jul 9, 2012

SBI chief has faith in Mallya, but how will he get the money?

By Sourav Majumdar

State Bank of India Chairman Pratip Chaudhuri's words must come as music to beleaguered liquor and airline baron Vijay Mallya's ears. Chaudhuri, whose bank has the largest exposure to Mallya's struggling airline Kingfisher, was reported to have said in a recent television interview that the bank still had faith in the management of the airline.

Chaudhuri's bank has a Rs 1,400 crore exposure to Kingfisher, but he says SBI is not going to press the panic button just yet on its Kingfisher exposure. In fact, he exhorted Mallya to "keep the airline running" and urged him to "show some courage". Chaudhuri, in fact, said SBI takes action to recover its dues only when the managements raise their hands in helplessness. SBI, he said, will work with the company "till the last" to help revive Kingfisher.

The SBI chairman's latest comments on the airline - which has clearly proved to be Vijay Mallya's biggest crisis point in recent times - comes at a time when lenders are increasingly getting exasperated about ways in which to recover their dues from Kingfisher. At about Rs 7,500 crore, Kingfisher's debt is huge, its operations have reduced dramatically owing to non-payment of dues, its market share has crashed and it is gasping for survival.

PTI

So much so, that last week there was talk of the possibility that the airline's properties Kingfisher House in Mumbai and a villa in Goa could be sold to allow it to bring in some money. This, however, was later denied by the airline's spokesperson, who was later quoted as saying the company had, in fact, decided to request the lenders to keep these two properties out of the security package in lieu of payment of the full value assigned to them.

With SBI still not throwing in the towel on Mallya's airline, there seems to still be a glimmer of hope for Kingfisher. Chaudhuri, however, had an important caveat to his statements. He said no revival plan for the airline could be meaningful unless fresh equity was infused into the airline urgently.

But the big question which remains is, if indeed Mallya and the bankers want Kingfisher to keep flying, where will he get the equity from? "It will have to be Mallya's own equity, since it will be very tough to get any financial or strategic investor at this point, given the company's disastrous financial health," says the CEO of a leading investment bank, requesting anonymity.

With over Rs 6,000 crore of accumulated losses as at FY12 and the Rs 7,500 crore debt, getting any new investor will be a Herculean task for Mallya. The bankers have been patient with Kingfisher and Mallya, but the pressure is mounting with the lenders themselves in stress owing to mounting bad loans in the system and greater scrutiny by the Reserve Bank of India.

However, financial market players also wonder why the lenders have not insisted on fresh equity much more strongly and much earlier when they saw the airline's losses mounting. "Rather than now, they should have insisted on fresh equity much earlier, when the losses were showing signs of ballooning," an investment banker said.

The Indian aviation sector is steeped in crisis with other major airlines like Jet and Air India too struggling. A slowdown in the economy, and high fuel and airport costs have dealt body blows to the aviation sector. Analysts reckon it would have perhaps still been possible for Mallya to consider getting in an external investor in the airline had the economy been healthier like in 2007. "But in today's economic climate, it's a massive task," says the investment bank CEO. The airline's employees have not been paid for months and other creditors are also knocking on its doors.

However, a PTI report of 8 July says the share of small investors and high net worth individuals has been increasing in Kingfisher, something most will find surprising given the failing health of the company. The holding of small investors (defined as those holding up to Rs 1 lakh worth shares in a company) has almost doubled in about 15 months, while that of HNIs (individuals with shares worth over Rs 1 lakh) has more than tripled, the report says.

Some sections of investors may still be sharing the SBI chairman's optimism and faith in Vijay Mallya's management. It's clearly thanks to Mallya's stature that lenders are still placing their bets on him. But surely, this patience of the bankers will be wearing out before long. For the King of Good Times, who is also a veteran of many major alliances and acquisitions, it's a dangerous air pocket he now finds himself in. It's time for Mallya to make the best of the little window provided to him by the bankers. There's much more at stake for him than just his airline.

by Sourav Majumdar

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