SBI Caps to prepare viability report

SBI Capital Markets will prepare a viability report on debt-ridden Kingfisher Airlines to present it to a consortium of banks, the State Bank of India’s non-banking subsidiary said on Friday. The report will be prepared within a few weeks, according to S Vishvanathan, managing director and chief executive officer of SBI Capital Markets.

“After the report is presented to the banks, they will take a call on the next step,” he said. “Kingfisher will have to raise funds. The airline does not require restructuring of loans, but they are in urgent need of working capital.”

Kingfisher has requested for additional working capital and not restructuring of loans, said Vishwanathan. “They had recently undergone a debt-restructuring so they don’t need that. The airline is not a distressed asset despite its financial stress,” he said.

Earlier this week, Vijay Mallya, the airline’s chairman, had asked banks to reduce the interest rate on the debt it is currently paying. It is also seeking between Rs 800 crore and Rs 900 crore in working capital. The bankers, however, were not convinced with its growth prospects.

However, the airline management meet the bankers on Friday. Sources said the airline sought additional working capital worth Rs 2,300 crore and line of credit worth Rs 1,000 crore to replace maintenance reserves with the lessors. The airline is also in the process of appointing a consultant to look into operational issues. The consultant is expected to submit its report within 15 days. Sources said Kingfisher is allowed to negotiate with each lenders who would take a call after both the viability report and the consultant's report is submitted.

When contacted, Mallya declined to comment on the meeting with bankers, but said, "We had agreed to raise equity, and hence, initiated the process of global depositary receipt (GDR)." Kingfisher, which listed when it bought out budget airline, Air Deccan in 2008, has never made a profit.

Vishwanathan said a strategic investor was a “good option” for raising funds as compared to the rights issue plan or even GDR of the company due to the current market conditions. “A strategic investor with money might see value in the long term; it could be the quickest option for the airline to raise money,” he said. “The company might not be able to raise a big chunk of money due to its low share price at the moment.”

On Friday, Kingfisher shares closed 3.6 per cent down at Rs 24.05 on the Bombay Stock Exchange. On November 11, it had touched an all time low of Rs 17.55.

“If all airlines are suffering, then it shows there is a problem with the industry, and not just with Kingfisher,” said Vishwanathan. “The current round of losses was primarily on account of rising ATF costs, which they weren’t able to pass on to the customers.”

Fuel costs of the three listed airlines shot up between 50 per cent and 83 per cent during the quarter.

The losses of Kingfisher, which began operations in May 2005, doubled during the second quarter to Rs 469 crore.

As for its rivals, Jet Airways reported a loss of Rs 713 crore, while the figure during the quarter was Rs 240 crore for SpiceJet.