Kingfisher Airlines Ltd.'s (532747.BY) lenders plan to soon start a process to sell 5 billion rupees ($93 million) worth of shares deposited by parent UB Group as collateral against loans.
In the first of several planned moves likely to cause severe financial strain across the UB conglomerate, the lenders will sell shares in group companies Mangalore Chemicals and Fertilizers Ltd. (530011.BY) and United Spirits Ltd. (532432.BY), said a senior State Bank of India (500112.BY) executive.
"Kingfisher had told us to wait as there was some money coming from the Diageo deal. That hasn't happened," Shyamal Acharya, deputy managing director at SBI, told The Wall Street Journal.
He was referring to a United Spirits plan to sell a 53.4% stake to British liquor company Diageo PLC (DGE.LN) for up to $2 billion. Part of the proceeds were expected to come to Kingfisher, but the deal hasn't come through yet.
Mr. Acharya separately said on television that a consortium of lenders to Kingfisher will try and recover some of the total 70 billion rupees of loans in the current quarter through March itself.
His comments come a day after the consortium decided to recall all loans to Kingfisher, which has been grounded since October.
The recall is a demand for immediate repayment, failing which the banks will take control of any assets deposited as collateral.
The consortium has appointed a core team of four banks -- SBI, IDBI Bank Ltd., Bank of India and Punjab National Bank -- to take the recall process ahead and deal with legal issues.
Mr. Acharya said that the major chunk of the collateral held by the consortium is in shares and in guarantees from group companies including United Breweries (Holdings), United Breweries and United Spirits. It also includes the Kingfisher brand, its office in Mumbai and a villa owned by the UB Group.
The total value of the collateral, excluding Kingfisher Airline's brand, is 65 billion rupees, Mr. Acharya said.
In the first response since news of the recall broke late Tuesday, a senior Kingfisher executive said the company is "aware of the situation and is doing what we can."
"Fifteen days earlier, I would have given a confident answer. Today I have none," he said when asked whether the airline has any chance of flying again.
Analysts said the recall will hurt investor sentiment for all UB Group companies.
A sale of stocks in Mangalore Chemicals and United Spirits will cause a "significant fall in share value, more so if they are sold in the open market," said Ambareesh Baliga, an independent investment consultant.
"While guarantees and other assets may take time and involve legal proceedings, banks don't need legal approval for selling shares," he added.
Kapil Kaul, South Asia chief executive at Sydney's CAPA-Centre for Aviation, warned that the process of selling assets could take a while. It will likely involve "a lot of haggling over asset value," which means that the banks may not be able to recover the full value of the loans.
Apart from the shares and guarantee, the UB Group also stands to lose the 10 billion rupees it has pumped into Kingfisher.
The airline, which has made losses since its inception in May 2005, now owes more than $2.5 billion to its lenders, suppliers, leasing companies, airport operators, other airlines, employees and to the government in taxes.
Kingfisher and most of India's other airlines have been hit by rising fuel prices, high interest rates and a slowdown in economic growth which has curbed demand for air travel.
Run by flamboyant liquor baron Vijay Mallya, Kingfisher began by expanding aggressively. But the plans backfired in the face of a slowdown in traffic during the 2008 global economic crisis.
On Oct. 1 2012, its employees went on strike because they hadn't been paid in months, forcing the airline to cancel all flights. The government later deactivated its license.
Kingfisher has been trying without success in the last few years to raise cash. It was recently in talks to sell a stake to Abu-Dhabi-based Etihad Airways, but lost the race to rival Jet Airways (India) Ltd., which is expected to soon announce its own stake sale to Etihad.
Reacting to news of the loan recall, shares of UB Group companies tanked Wednesday.
