Q&A: Ravi Nedungadi, UB Group

'Kingfisher rights issue by FY12-end'

With losses rising and the government silent on key demands such as lower tax on aviation turbine fuel (ATF) and allowing foreign airlines to invest in Indian carriers, Kingfisher Airlines brass is doing all it can to fly out of the turbulence zone. Ravi Nedungadi, UB Group’s president and chief financial officer, tells Aneesh Phadnis about their hopes to earn Rs 700 crore from the change in aircraft lease rental conditions and plan for a rights issue. Edited excerpts:

What is the fund-raising plan for Kingfisher? Will you raise Rs 2,000 crore via rights issue?
We are in the process of finalising prospectus with the Securities and Exchange Board of India. The board approval is for equity infusion of Rs 2,000 crore, but it need not be that much. We will come out with the issue before the end of 2011-12.

Banks are reluctant to participate in the rights issue?
It will be premature to say so.

Have you dropped the plan to raise funds through Global Depository Receipts (GDR)?
We have both options. It could be either a rights issue or through global depository receipts. We can do Rs 1,000 crore of both. As of now, global markets do not show spark and GDR does not seem to be the best option.

How will you convince the banks to lend considering the airline's losses ?
The banks are cognizant to the fact the aviation industry is important. It is also important to note the current operating environment and there has been an increase in fuel prices and depreciation in the rupee. There is no other industry where promoters have put so much money. Even the banking system goes through highs and lows.

Will Kingfisher be able to command a premium for its full service?
India is not a cheap market. There is a demand at the bottom of the pyramid, but we are moving up the value chain. Kingfisher passengers expect to be pampered and this is what the brand communicates. We will be consistent with it. We are reducing the number of first class seats and replacing them with economy.

What about change of lease conditions for planes?
We are targeting reduction in lease rentals across the network and are in talks with the lessors. We have 12 owned planes and have mandated a bank in London to put up a request for proposal of converting financial lease (of the planes) to operating lease.

What about the demand for direct import of aviation turbine fuel?
We will be able to save on sales tax on ATF. There is no legal bar on direct import of ATF. Our CEO, Sanjay Agarwal, is in talks with oil companies.