Questions around Mallya's offer to settle his dues

The latest news on the debt dilemma of Kingfisher Airlines is that Vijay Mallya has informed the Supreme Court that he is willing to pay Rs 4,000 crore by September 2016 as partial settlement of his dues to banks. In turn, the Supreme Court has given the banks one week’s time to respond whether they want to take up the offer or not.

Many are for taking it up since whatever comes to settle the debts of the defunct airline should be considered a bonus while others want the full dues to be paid up as the promoters have the moolah to pay up. The answer is neither yes or no since only one portion of the Kingfisher conundrum is being addressed.

However, since banks have only a week, what should their response be? They can certainly ask more questions before conveying their decision. The first question could be “Why September 2016? Why not, say, June 2016?” The lenders may be getting the impression that this is nothing but  a tactic to ask for more time.

Mallya may be thinking “What does 6 months more matter for people who have waited for 60 months?” It is possible that Kingfisher Airlines is waiting for the proposed Bankruptcy Code to be passed by parliament. Once this Code is passed, Kingfisher could file for bankruptcy and many of its problems with debts could be forgotten. 

Banks should also ask a question whether this offer would stand even if the Bankruptcy Code is passed and Kingfisher files for bankruptcy under the Code. The next question that bankers should ask is whether the balance dues would also be paid. This question arises because the Supreme Court has been informed that this is a partial settlement.

In case this is indeed a partial settlement, why is there no clear road map for the balance? Some banks want Mallya to show them the money now. This appears impractical because if Mallya can show the money now, he might as well pay it now. If not the Bankruptcy Code, it is apparent that he is waiting for some business deal to happen to repay the banks.

Mallya still has some residuary shareholding in the group companies of the United Spirits group. Back of the envelope calculations show that the market value of these holdings would just about match the total dues of Kingfisher Airlines. But Mallya is too shrewd a businessman to liquidate all his stakes to repay debts of an airline that went bankrupt.

The final question that the banks should ask is whether the entire amount is going to be paid in a bullet payment or in installments. In many instances, lenders take a motherly stance towards errant borrowers who repay a part of their dues. There is no doubt that the banks would be keen to give their nod to this offer.

Bad debts

Although most banks have made a provision for the loans that have been provided to Kingfisher Airlines and group companies, any recovery would be accounted for as their income. At a time when the profits of all banks are being battered due to additional provisioning for bad debts due to the Asset Quality Review (AQR) mandated by the RBI, any such recoveries would be gold dust.

It is possible that Mallya has given a knee-jerk reaction to the Supreme Court considering the bad publicity he has received even since he boarded the British Airways flight to London on April 2. However implausible it may appear, it is a fact that 1.25 billion people, courts, all investigative agencies and tax departments appear to be waiting for Mallya to return, walk down to the banks and repay their dues to the last penny.

Irrespective of what the banks say, the Supreme Court should not think of a different solution to the issue. Though it is only hearing cases that have been filed and has to decide accordingly, the court should accept the fact that this is only a part of the problem.

Apart from the lenders, Kingfisher Airlines owes money to ex-employees, all the tax departments apart from various other sundry creditors. Many of these people may not have the time, ability or resources to knock on the doors of the Supreme Court to seek justice and repayment of their dues.  It is reported that ex-employees of Kingfisher Airlines located abroad have received all their dues because the legal systems in those countries are not as malleable and unpredictable as those in India. 

It is obvious that justice needs to be done to all. Who better than the Supreme Court to ensure this? The top court should immediately appoint an arbitrator or a settlement panel to resolve the Kingfisher issue. The job of this agency would be to estimate the total dues of Kingfisher Airlines, assess how much Mallya is prepared to pay to settle those dues once and for all and allocate such amount to the dues. This is not going to be an easy process since every tangible and intangible asset on the balance sheet of Kingfisher Airlines has been hypothecated.

Legal battles are being fought across the country on who has a charge on these assets. Since the arbitrator is appointed by the court, the Scheme would be a court-approved scheme.

The Kingfisher Airlines episode has been in the news for the past few months. At a certain point in time, everyone is going to get mentally tired of only seeing variations of the original news with no resolution in sight. Someone should approach the Supreme Court to form a resolution panel to ensure that the issue is resolved permanently with a win-win feeling for everyone. They can commence with the assumption that Rs 4,000 crores by September 2016 is a full and final offer.

(The writer is a Bengaluru-based tax expert)