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Bankers toughen stand as Kingfisher grapples with survival blueprint

 Airline’s board considers asset sale, equity infusion on eve of meet with lenders.

Bankers to Kingfisher Airlines, which is facing serious headwinds due to a severe cash crunch, have toughened their stand a day before their scheduled meeting with the airline’s management in Mumbai.The Kingfisher management has to convince us about the airline’s viability, which is a key concern,” Hemant Contractor, managing director of State Bank of India’s international business, said here on Monday. Also, the airline needed to raise Rs 800-1,000 crore in equity before banks could consider restructuring existing debt, he added.The airline’s board had a long meeting till late in the evening on Monday to draw up a blueprint to convince lenders. The company was tightlipped about the proceedings and merely said chairman Vijay Mallya would meet reporters Tuesday noon. Sources familiar with the developments said the company was approaching banks for a reappraisal of working capital requirements, it would consider selling some of its properties and had got a tangible monetary commitment from group flagship United Breweries Holdings.

Kingfisher has also asked for lenders’ assistance in converting a part of its rupee debt to cheaper dollar loans, to cut interest rates and to release cash from maintenance reserves held with plane-leasing companies by way of bank guarantees.

Contractor said Kingfisher’s promoters had to come with some fresh funds for banks to consider their request at all for restructuring. “We want to see some fresh funds coming from the company itself,” he added. SBI has Rs 1,400 crore exposure in Kingfisher, making it the airline’s biggest lender.

Banks have also suggested that Kingfisher sell some of its assets to raise fresh funds. Contractor said the bank had not received any directive from the government to restructure the loans given to Kingfisher. Banks and other financial institutions hold 23.37 per cent stake in the airline.

Kingfisher had previously announced a plan to raise $250 million through an issue of global depository receipts. And, earlier this year, it received board approval to raise up to Rs 2,000 crore by issuing preferential shares. Both plans are yet to be implemented.

There was some good news for the Kingfisher counter in the stock markets. The stock rose 8.65 per cent amid reports the airline was considering a proposal to sell property to raise funds. The carrier’s stock, which had plunged to an all-time low of Rs 17.55 during Friday’s trade, gained Rs 1.70 to close at Rs 21.35 on the Bombay Stock Exchange on Monday.

Mallya was busy tweeting throughout the day. Taking a dig at the media for “sensational” reporting, he said there was no question of a bailout involving taxpayers’ money. “We want working capital management assistance,” he said in another tweet. The airline ran into fresh trouble despite lenders restructuring its debt in April, which involved conversion of debt into equity.

Since Kingfisher’s price is already trading at a discount from the price at which the conversion took place, banks have booked mark to market losses in the first two quarters of the current financial year.

SBI, for example, incurred a mark to market loss of Rs 26 crore during the quarter ended September for its 5.68 per cent stake in Kingfisher. The total exposure of banks in Kingfisher is close to Rs 7,500 crore, of which around Rs 4,000 crore is in the form of term loans. If banks undertake another round of loan restructuring, they will have to classify the account as non-performing. The private airline has been cancelling flights in recent times — a move aimed at cutting mounting losses. The airline has reported a Rs 1,071 crore loss for the year ended March 2011.


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