Kingfisher to convert up to a third of debt into equity

Talks with banks to end in a month; 2-yr moratorium, with repayment over 7 yrs

Kingfisher Airlines (KFA), owned by the liquor to airlines UB Group, has decided to revamp its capital structure by converting 30 per cent of total debt into equity to reduce the loan burden. The debt was Rs7,500 crore at end-March, a leverage of 17 times.

“We have decided to convert Rs735 crore of loan given to the company from UBHL (parent company United breweries Hldings Ltd) to equity. Also, the process of restructuring is going on now with various banks (for the rest of the conversion) and is likely to be closed in the next one month,” said Vijay Mallya, chairman, on the sidelines of the annual general meeting.

The dilution of promoters’ stake due to such capital restructuring is yet to be ascertained

“As part of the debt recast by banks, we will repay the loan amount in nine years. While there is a moratorium on repayment for the first two years, the loan will be repaid in seven years at a fixed interest rate of 11 per cent,” Mallya added.

He said the overall environment in aviation was improving and was likely to positively impact the balance sheet. “Our Ebitda (earnings before interest, taxes, depreciation and amortisation) margin is around 13 per cent now, a significant improvement over last year. This is going to be higher, with improvement in the economy. Our load factor has also improved to around 80 per cent,” he said.

Kingfisher has been badly hit during the recession, due to falling utilisation and rising aviation turbine fuel (ATF) prices. However, it had narrowed its losses in the first quarter of this year by 21 per cent to Rs187.3 crore during April-June, as compared to the same period last year. Total revenue had risen by 28 per cent to Rs1,640.6 crore during this period. It had earlier appointed Seabury, the international aviation consultant, for reducing operational expenditure.

The company is also ready to issue global depository receipts (GDR) of $250 million (Rs1,200 crore) as soon as the loan recast with banks is over. “Meantime, we are also talking to investors in the United States, Far East and Europe. I am delighted that there is a strong interest among the investors,” said Mallya. Adding: “We are also working on space optimization, marketing spend and rationalisation of manpower to reduce operational expenditure.”

Ex-SpiceJet head as CEO
Meanwhile, in a separate move, the airline appointed Sanjay Aggarwal as new chief executive officer with immediate effect. Aggarwal was heading low-cost airline SpiceJet till recently.

"I will continue in my role as Chairman and Managing Director and Sanjay will report directly to me. All Executive Vice Presidents and other officers currently reporting to me will henceforth report directly to Sanjay," Mallya said on the sidelines of the annual general meeting.

May cut jobs: Mallya
He also said, “There are several employees on our rolls whose presence in the organisation will be reviewed".

“We will look at some structural changes in combination of jobs, (and) job profiles as well but without any mass, large-scale layoffs. We are looking to rationalise our human resources cost base,” he said.

But Mallya also said that Kingfisher was "not in the business of hiring and firing and generating unemployment".

He said Kingfisher planned to apply for more international flight routes to beat possible competition from Spice Jet and Indigo.