Modiluft To Convert Icds Into Equity

ModiLuft, the S K Modi-promoted private domestic airline, is working out a revival package which includes converting loans raised in the inter-corporate deposits (ICD) market into equity in a phased manner. Another option given to the ICD holders is to offset part of the loan against free tickets from the airline when it starts flying again.

The ailing carrier, which has given the mandate of preparing the financial revival package to UK merchant banking company Seamico Marlin Securities, is working out a plan to convert the ICDs into convertible debentures, a part of which will be subsequently converted into equity.

The draft of the financial revival package has been prepared by Seamico Marlin and its Indian arm, Birla Marlin Securities, after studying the status of ModiLuft and the current sentiment on the stockmarkets. Seamico Marlin director Tim Lovell was recently in Mumbai to discuss the draft with major holders of the ICDs.

ModiLuft, which has been grounded for over a year, is believed to have raised ICDs worth Rs 20 crore from various companies. This includes Rs 5 crore from hotel chain Leela groups financial arm Leela Capital & Finance Ltd and about Rs 4-5 crore from Reliance Industries Ltd. Numerous attempts to contact S K Modi proved futile.

According to companies to which ModiLuft owes money, an offer has been made to convert 75 per cent of the debentures into equity after a year, giving them an equity stake in the airline. In return, the airline wants them to waive the interest on the loan.

ModiLuft has also assured the ICD holders that it has entered into a tieup with Speed Wings, the technical arm of British Airways. The UK carrier, after a study of the Indian aviation industry, is said to have prepared a business plan to turn ModiLuft into a profitable venture by the year 2000.

Sources say ModiLuft is also planning to raise funds in the overseas market through a bonds issue worth $50 million.

ModiLuft first ran into trouble in May 1996, when Lufthansa abruptly terminated the two airlines business relations on the ground that the Indian partner had repeatedly defaulted on payments and was unable to adhere to its commitments. The differences between the two partners were recently resolved in London.

ModiLuft also had to face a hostile bid by the Khemkas of the NEPC group. Earlier, the Khemkas had acquired Damania Airways and turned it into NEPC Airlines. However, Modi managed to thwart the NEPC bid to acquire a controlling stake through an open offer.