Mallya may mortgage prime assets

Banks ask him to bring in Rs 800 crore

Banks have told him to pump in Rs 800 crore into the company which may force Mallya to either liquidate or mortgage some of his prime assets to raise funds for the hugely loss-making and debt-ridden Kingfisher Airlines.

The accumulated loss of the airline, second in terms of market share with 19 per cent of the domestic market, has reached around Rs 6,000 crore. It also owes Rs 6,200 crore to 13 banks who have lent money and another around Rs 1,000 crore to oil companies and airports.

“We have asked them (the UB group) to come up with some fresh funds. One thing that is being discussed is selling some of its assets. If they do it, it is good or they would have to find some other means,”  State Bank of India (SBI) Managing Director Hemant Contractor on Monday told reporters on the sidelines of the World Economic Forum, being held in Mumbai.

Talking to news agencies in Kolkata on Sunday, SBI Chairman Pratip Choudhuri said  bankers want more information on their fleet, equity, continuation of fuel supply.
SBI is the lead banker of a 13-bank consortium that financed Kingfisher.

The Centre for Asia Pacific Aviation, an aviation consulting firm, estimated that Kingfisher will need at least $ 400 million or around Rs 4,000 crore. As per the lenders’ demand, Mallya and his companies need to raise bulk of this fund and the balance can come from banks.

Kingfisher Board met in Mumbai Monday evening to decide on fund raising proposals and also to approve the company’s financial results for the quarter ended September 30, 2011. Mallya will announce the decision on Tuesday and also meet the bankers to present his plan to raise funds.

Given the fact that the banks want Mallya to invest Rs 800 crore in the form of equity capital and another Rs 400 crore in the form of additional debt, the liquor baron needs to raise nearly Rs 1,200 crore from his own sources.

Since he has already pledged the promoter group’s entire shareholding in Kingfisher to banks and part of the promoters’ holding in his other companies like UB Holdings, United Spirits and UB Ltd, the only major option left is to sell or mortgage his assets. Another option is to raise about Rs 500 crore by changing aircraft leases from financial lease to operating lease.

Company observers feel that there are several assets that Mallya can leverage upon. His corporate office in Mumbai near the domestic airport, already empty as the office has moved to a rented property, can fetch around Rs 200 crore. If he sells his share of 30 apartments in the residential property being built on the land on Bangalore’s Vittal Mallya Road, he can get another Rs 500 crore.

In addition, he has a palatial villa in South Mumbai and another mansion in Goa on the beach. In South Africa, Mallya owns a huge Game Safari and a few breweries. Among the Mallya’s showpieces in sport, the most jewel on the crown is his IPL cricket team Royal Challengers Bangalore, valued at around $75 million (Rs 375 crore). The other assets are his ownership of two Kolkata-based football teams — East Bengal and Mohun Bagan—and the part ownership in a Formula1 team.   

It is also not certain that banks will pour more money in Kingfisher even after Mallya brings in his share.

“We have to be satisfied about the viability of the company. There is no point restructuring if the company’s operations are not going to be viable,” SBI Managing Director Hemant Contractor said.