No decision on fresh loans to Kingfisher by SBI, equity infusion key

MUMBAI Sun Feb 26, 2012 1:06pm IST

A Kingfisher Airlines aircraft taxis on the tarmac at Mumbai's domestic airport February 21, 2012. REUTERS/Vivek Prakash

A Kingfisher Airlines aircraft taxis on the tarmac at Mumbai's domestic airport February 21, 2012.

Credit: Reuters/Vivek Prakash

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MUMBAI (Reuters) - State Bank of India (SBI), the lead lender to Kingfisher Airlines (KING.NS) will not consider any fresh loans for the debt-laden carrier until it raises new equity itself, a senior executive of the state-owned bank said.

SBI is studying a viability report prepared by its investment banking arm, SBI Capital Markets, and any decision on further lending to Kingfisher will be based on that as well as conditional on an infusion of funds into the airline, Deputy Managing Director R. Venkatachalam told Reuters in an interview from his Mumbai office on Saturday.

Desperately strapped for cash, Kingfisher stands on the brink of collapse after multiple flight cancellations and the resignation of dozens of its pilots.

Kingfisher, which has not turned a profit since it was founded in 2005 and is carrying debt of at least $1.3 billion, has asked for 20-30 billion rupees in loans from banks to carry out its day-to-day operations.

"Everything depends on equity infusion - how much comes in, whether that will meet the requirements. First it has to come," Venkatachalam said.

Venkatachalam heads the mid-corporate division of the bank, which makes loans upwards of 250 million rupees to companies that have a turnover of at least 1 billion rupees.

SBI, which accounts for nearly a quarter of India's loans and deposits, will wait for some "policy evolution" towards the aviation sector before taking any fresh exposures in airlines, he said.

The government has made some regulatory changes in the sector recently, allowing airlines to import fuel directly, which has lowered their costs, and given more leeway for private carriers to fly overseas.

But there has been no indication that it is planning to rescue Kingfisher even though state-run banks own about one-fifth of its equity and three-quarters of its debt.

Venkatachalam said there was no government pressure on the consortium of banks to bail Kingfisher out.

"In all these cases it can't be one-sided. They have to get the capital first. Without that it will definitely be difficult for banks to lend," said Venkatachalam, who said he was upset by "sensational" and "unethical" media reports about SBI riding to Kingfisher's rescue.

Last week, several newspapers reported that SBI was poised to offer Kingfisher fresh funds, putting the sum variously between 2 billion and 16.5 billion rupees, and one daily said that the money has already been given to the airline.

"The account is also a non-performing asset with a lot of banks so ... without the viability study being accepted by everyone it will not be possible for anybody to infuse funds," he added.

The Times of India, citing carrier Chairman Vijay Mallya, said on Saturday that Kingfisher Airlines had received re-capitalisation offers worth 8 billion rupees from two Indian investors. The investors would get a combined 24 percent stake in the airline if the deal was to succeed, it said.

Venkatachalam said he had not heard from the carrier about the re-capitalisation offers.

"Once they finalise equity we can sit and study the position and then make a decision," he said.

(Editing by John Chalmers and Ron Popeski)

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