Deccan 360 readies for loan restructuring

Grounded since May, Gopinath’s pioneering venture stuck in red ink, with close to Rs 500 crore owed to diverse lenders.

Deccan 360, the now-grounded air cargo business started by low-cost civil aviation pioneer G R Gopinath, is understood to be on the verge of referral to the corporate debt restructuring scheme formed under the guidelines of Reserve Bank of India (RBI).

The company is understood to have run up a debt of around Rs 500 crore. Axis Bank has an exposure of Rs 200 crore, State Bank of India of Rs 160 crore and the rest is from Syndicate Bank and some others.

Deccan 360 was started in mid-2009. It has been grounded from early this year, as the volumes did not pick up enough to sustain operations. It had raised Rs 115 crore equity investment from Reliance Industries during early 2010, with a commitment to invest more as operations expanded. With the operations not going according to plan, RIL stopped its investments and is understood to have expressed willingness to exit or pare its stake.

According to investment bankers, RIL has since structured a transaction to move its investment in Deccan 360 to RIL chairman Mukesh Ambani’s personal investment portfolio.

According to senior bankers who have been in discussion with Gopinath, the decision to refer Deccen 360 to the CDR cell has been taken and the papers are being readied. There are guidelines from RBI on the process; an empowered committee decides on the viability of the company and spells out a debt restructuring schedule. For infrastructure companies, a maximum of 10 years is granted; it is seven years for non-infra players. During late 2010, Kingfisher Airlines went through the CDR scheme to restructure as much as Rs 1,300 crore of a Rs 7,000 crore debt.

The move to refer Deccan 360 for CDR comes on the heels of some progress made on the possible sale of the company to a Mumbai-based diversified group, which is understood to have shown interest. “However, that group has said it would be better to go through the CDR before taking a decision on how to structure the transaction,” another senior banker told Business Standard.

Since early May this year, Deccan 360 had stopped its services through three Airbus 310s and these planes have since been taken back by the lessors. Deccan now has only two ATRs (short-haul turboprops), grounded as the company is not taking any orders. Close to 1,000 employees have since left the company.

With his cargo venture, Gopinath had aimed to fill a latent gap in the logistics network for a range of businesses. While a majority of air cargo providers connect India to the world, there are only a few pan-India service providers which can connect various cities and towns in India. “The business idea of Deccan 360 is an excellent one, but they could not execute it to the desired results,” the investment banker said.

Since starting the venture, Gopinath is understood to have invested Rs 75 crore, RIL another Rs 115 crore and the company had raised debt of Rs 500 crore. On a top line of Rs 180 crore for financial year 2010-11, the company had reportedly lost as much as Rs 120 crore.

“Deccan 360 was not able to get large customers who can bring in annual revenue of Rs 20-30 crore each and has been relying on 2,000 small businesses, which is not high-yielding and not consistent. Not a single CEO has stayed long enough to execute strategies,” the banker said.