UPDATE 1-Lenders losing patience with Kingfisher Airlines

Mon Jul 2, 2012 6:17pm IST

Stocks

   

* ICICI Bank sells $72 mln debt to SREI Infrastructure

* Bankers to meet Thursday to decide on future plan

* Company talking to pilots to head off strike over pay (Adds detail, background)

By Anurag Kotoky and Swati Pandey

NEW DELHI/MUMBAI, July 2 (Reuters) - Lenders to India's beleaguered Kingfisher Airlines are losing hope it will be able to bring in outside investment anytime soon and may sell assets held against their loans, three bankers said on Monday.

Kingfisher, which a year ago was India's No. 2 airline by domestic market share, is the biggest victim of turbulence in an aviation industry where the six main carriers face a total debt load of $20 billion and $2 billion in annual losses.

It is now the smallest carrier by market share in India where the government has stalled on implementing a proposal to allow foreign carriers to invest in domestic airlines.

Even if foreign direct investment by an airline was allowed, there is no guarantee that Kingfisher, controlled by liquor baron Vijay Mallya and laden with $1.4 billion debt at the end of March, will be able to find an investor.

Kingfisher, which has slashed its schedule and is flying 16 planes, down from a peak of 64, has been late paying lenders, staff, and other bills. It last paid salaries for January, a spokesman said.

"(Mallya) keeps telling that FDI is expected, investors are coming in, but nothing has happened. It has reached a flash point. We cannot wait anymore," said an executive at a state bank owed money by Kingfisher who declined to be identified.

Lenders will meet on Thursday to decide on a course of action. Three bankers involved in the process said they would consider invoking securities and guarantees against the debt to recover their money.

State Bank of India, leader of a consortium of lenders to Kingfisher, would not comment on whether banks were considering selling shares in the airline and other Mallya entities pledged with lenders.

"We will discuss as to what exactly we can do to recover our money. Some banks from the consortium asked us to convene this meeting in light of the latest developments in the company," said V.G. Kannan, who as chief general manager at State Bank of India, oversees loans from India's biggest bank to Kingfisher.

"We want to take a decision. We cannot wait indefinitely."

On Monday, one of Kingfisher's lenders, ICICI Bank , said it no longer held any debt in Kingfisher. A fund managed by SREI Infrastructure Finance had said it bought about 4 billion rupees ($72 million) of the carrier's debt from ICICI.

On Monday, local media reported a group of pilots had gone on strike demanding salary dues, although a Kingfisher spokesman said top executives were in talks with pilots over salary payments in a bid to avert a strike.

DWINDLING OPTIONS

Kingfisher has been unable to find big investors willing to pump in fresh capital. A proposal to lift a ban on foreign carriers taking direct stakes in Indian airlines, potentially opening a lifeline for Kingfisher, has languished, with some of India's ruling coalition allies opposing it.

Its shares, down 82 percent in value this year, fell 1.2 percent on the day to 11.95 rupees.

Kingfisher's controlling shareholders, including Mallya, have pledged 90.11 percent of their holding in the airline with lenders while controlling shareholders of another UB group company, United Spirits have pledged 94.42 percent, according to Bombay Stock Exchange data.

"The company is almost on the verge of collapse now. There is no movement on the government for allowing FDI in aviation. We want to recover our money," a senior executive at another of the airline's lenders told Reuters.

"The only possibility is invoking the guarantees. We only have UB group shares," the banker said, echoing complaints of lenders that Mallya has been unwilling to make additional personal guarantees.

India has no formal bankruptcy process.

Kingfisher lenders include Bank of Baroda, Bank of India, Central Bank of India, IDBI Bank , Punjab National Bank, and UCO Bank . Most listed their Kingfisher loans as non-performing in the December quarter.

"There is a bank consortium meeting on July 5 and an agenda has been circulated. There is no mention of security invocation and it would be inaccurate and/or misreporting to speculate otherwise," said Kingfisher spokesman Prakash Mirpuri.

Bankers may make a "harsh" call if they do not see another way to recover their debt, said Rashesh Shah, an analyst with ICICI Securities, which has suspended coverage of the stock.

"We do not see how the company would be able to perform going forward on account of massive debt and lack of funds from the promoters (or controlling shareholders)," he said. ($1 = 55.8350 Indian rupees) (Editing by Tony Munroe and Dan Lalor)

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