Kingfisher Airlines: Flying high

The stock has soared on news of RBI allowing domestic banks to restructure aviation sector debt.

Kingfisher Airlines (KFA) has seen renewed investor interest, with the Reserve Bank of India’s approval seen favourable for the company’s impending global depository receipt (GDR) and domestic issues. KFA plans to raise $250 million (about Rs 1,100 crore) through GDRs and Rs 500 crore through a domestic issue in the next couple of months.

The board has also approved a plan to increase preference share capital to Rs 2,600 crore from Rs 100 crore to facilitate the debt recast. The move has seen the board of United Breweries (Holdings) Ltd, its holding company, approve conversion of loans of about Rs 650 crore into preference share capital.

Reports suggest KFA is seeking a two-year moratorium on the interest payment on its debt, which it hopes to repay over the next seven to nine years. With total debt of about Rs 7,922 crore and interest cost of nearly Rs 1,100 crore against a net loss of Rs 1,290 crore, the company had an interest coverage ratio of -0.84 per cent as of March.

Operationally, the year 2010 has spelt a strong revival of the aviation sector. KFA’s operating income increased 29 per cent year-on-year (y-o-y) to Rs 1,641 crore in the first quarter of the current financial year. Interest costs rose 50 per cent y-o-y to Rs 321 crore, but the company managed to contain losses at Rs 186 crore, 20 per cent lower than the year-ago period. Successful capital raising will help reduce interest cost, and will consequently cut losses.

The stock has soared over eight per cent in the last two trading sessions to Rs 74.1. It has not seen any significant rerating by analysts so far. It will depend on how the debt restructuring plan shapes up over the next month and the amount of capital the company attracts from overseas and Indian markets.