Kingfisher to sell 25% stock for Rs 2,000 cr

In an operational and financial restructuring, UB Group-owned Kingfisher Airlines has put 25 per cent equity on the block, for which it hopes to get Rs 2,000 crore, and obtained a corporate guarantee from United Breweries Holdings, the group’s investment arm, for loans worth Rs 6,400 crore.

It is returning surplus aircraft and deferring deliveries of new ones to streamline operations.

The sale of equity is designed to net strategic investors, though it is subject to an anticipated policy change that the government would allow foreign carriers to pick up equity in Indian airlines.

Yet, this is an indication that the group believes the airline to be worth Rs 8,000 crore, which is nearly 10 times its market capitalisation of around Rs 865.53 crore based on today’s closing price on the Bombay Stock Exchange.

 

These measures were part of a presentation made at a recent investors meet.

Close to 42 per cent of the loans will be securitised through the airline’s cash flows. Experts said this move, along with the financing costs (interest on loans), would virtually mortgage a large part of the earnings of the company.

Company sources said Kingfisher did not plan to take delivery of any wide-body aircraft before 2012, which may be construed as a deferment of international operations, which is where these aircraft are deployed.

The airline, whose operations shrank 21 per cent in the six months to December 2008, is returning nine aircraft to leasing companies, some of which have already been returned.

Kingfisher Airlines posted a loss of Rs 626 crore in the third quarter ended December 31, 2009.

In the presentation to investors, the company said UB Holdings would give corporate guarantee as collateral for Rs 6,356 crore worth of loans to fund aircraft acquisition and lease rentals. An e-mail questionnaire on the details of the loans and fleet restructuring sent to the company on Thursday remains unanswered.

“The lack of a strong balance sheet as far as Kingfisher is concerned comes from the fact that a large part of its fleet is not owned but leased, which does not make it a very asset-heavy company. The corporate guarantee of UB Holdings is therefore necessary to appease lenders,” said a market analyst.

In the presentation to investors, Kingfisher also said that it expected to realise $100 million (about Rs 500 crore) by deferring deliveries of new aircraft.