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Kingfisher Airlines no more a subsidiary: UB Holding

In February, Kingfisher allotted shares to banks and financial institutions against optionally convertible debentures, thus reducing stake of UB Holding. The question is who are these smart bankers who put money into the carrier which has been reporting losses since its inception

Vijay Mallya-led United Breweries (Holdings) (UBH), the majority shareholder in troubled Kingfisher Airlines said that the carrier ceased to be its subsidiary in February itself after the airlines allotted shares against optionally convertible debentures to certain entities. However, UBH said it had a significant exposure of over Rs12,000 crore to the debt-ridden airline.

In a regulatory filing, the UB Group unit said, "The company has significant exposure on various counts to Kingfisher Airlines as on March 2012. These include investment in equity/preference capital at Rs2,118.48 crore, corporate guarantees to banks and aircraft lessors at Rs6732.55 crore and Rs2,193.31 crore, respectively.". As on 10th May, UBH has a market cap of Rs416 crore.

According to a September 2011 report by Canadian research firm, Veritas, the finances of Kingfisher were so bad that they would drag down its parent United Breweries (UB) too. It had said, "UB, which has marketable assets of Rs4,713.40 crore ($1,037 million), compared to guarantees provided on behalf of Kingfisher of Rs16,853 crore ($3,638 million), is also staring into a black hole. We believe that the ill-conceived foray into the airline business has already cost UB shareholders dearly, and that their ownership of India's premier liquor and beer assets has been sacrificed at the altar of egoistic ambitions."

Kingfisher Airlines has pledged its brand as collateral with its lender consortium for Rs4,100 crore ($817.95 million). The brand valuation was done by Grant Thorton in 2010. Reportedly the brand has been valued and loans raised worth three times the carrier's market value.

On 6 July 2011, pursuant to requirements prescribed under the debt recast package, Kingfisher's founder companies, UBH and Kingfisher Finvest, pledged their entire stake in the airline with certain of its lenders.

Announcing its financial results for the fourth quarter ended March 2012, which saw its net profit plunging sharply by over 83% to Rs2.10 crore, UB Holdings, said that Kingfisher ceased to be a subsidiary as on 18th February, after the carrier allotted shares against optionally convertible debentures to certain entities.

Noting that it has given significant guarantees on behalf of its subsidiaries and associate companies, UB Holdings said its exposure to Kingfisher Airlines totalled Rs12,215.18 crore as on March 2012. The company's exposure relating to Kingfisher Airlines is under various accounts including corporate guarantees to banks. Total exposure include "advances at Rs1,029.75 crore and other receivables Rs141.09 crore", it added.

"Certain corporate guarantees have been invoked and Kingfisher Airlines is under negotiation in this regard with the beneficiaries," UBH said in the filing.

"In our view, the debt restructuring touted by Kingfisher is nothing to write home about. We believe that non-performing loans have been rechristened/repackaged into subordinated debt, and that Kingfisher has defaulted on its obligations is unquestionable. We do not believe that KAIR's antics would have found any takers in a responsible credit market and that the airline would have been liquidated by now," Veritas had said.

As on 31 December 2011, UBH had 40.1% stake in the carrier, but it declined to 34.55% on 18th February after an increase in the airline's equity base pursuant to issue of shares to some entities in lieu of certain convertible bonds.

As per the latest shareholding pattern available with the BSE, UB Holdings' stake in Kingfisher has declined further to 29.39% as on 24th April. The entire holding of UB Holdings in Kingfisher is as such pledged, BSE data shows.

UB Holdings further said that its investment in subsidiaries have been considered as long term strategic investments and diminution in their market value, though significant is considered temporary in nature.

The company said guarantee commission has been accrued based on contractual obligation, although the recovery could take a longer period of time than what was anticipated.

UB Holdings has been giving significant guarantees on behalf of subsidiaries and other associated companies and advances to subsidiaries. No amount has so far devolved on the company, the filing said.

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COMMENTS

Shanti Patel

5 years ago

The AUDITORs of the Banks must question the rationale behind going for conversion. Whether the price at debentures are converted is in the interest of the shareholders of the Bank, that also should be investigated by the auditors.

SJain

5 years ago

Why is a case not being filed against the owner who is hiding under the "Corporate veil", to block all his assets (whereto money has been diverted into) worldwide for this corporate fraud ?
Alongwith the Mallya family, Grant Thorton and the lending banks should be investigated for this huge fraud/scam.

Muthu

5 years ago

I don’t know how many would have read the book ‘Face Value- Creation and destruction of shareholder value in India’, written by Mr.Debashis Basu close to a decade ago. I read it couple of years ago in Eloor lending library.

There have been so much value destruction by di-worsfying and going for expansions for the sake of it in last 10 years; Mr.Basu may consider writing a sequence to the above.

REPLY

nagesh kini

In Reply to Muthu 5 years ago

Yes, Muthu I too eagerly look forward to the post-Kingfisher and DLF updated edition from Mr. D.Basu.
I'd like to know at what value were the debentures converted, surely not the inflated values applied for restructured loans!

Muthu

In Reply to nagesh kini 5 years ago

Not only Kingfisher or DLF… ADAG group of companies… very many real estate and infra companies.. the list would be very long. The way in which minority shareholders are treated by many companies, financial institutions turning blind eye on the same despite holding huge chunk of shares… we can look forward for a very good book.

nagesh kini

In Reply to Muthu 5 years ago

None of the so-called Independent Directors on their Board dare open their mouths. What were the distinguished directors doing in Satyam and also their Independent Auditors?
Credit must be given to the statutory auditor of Kingfisher for reporting facts in so many words, who remembers him?

Kingfisher pilots threaten not to fly from tonight

In an indication of a showdown with the Kingfisher management, a section of the Delhi-based pilots reported sick on Thursday, while their Mumbai counterparts decided not to fly from tonight

Mumbai: A section of Kingfisher pilots have decided not to fly from tonight to protest "backtracking" by the management on its "assurance" of remitting their January salaries from 9th May, a move which is likely to compound the woes of fliers already hit by the ongoing stir by Air India pilots.

"The management had said that it would start giving January salaries from 9th May onwards. However, it has backtracked on its commitment," Kingfisher sources told PTI.

According to sources, Kingfisher Airline Chairman Vijay Mallya had "assured" the staff in his 5th May communication of remitting their January salaries from Wednesday onwards.

In an indication of a showdown with the management, a section of the Delhi-based pilots of the cash-strapped airline reported sick on Thursday, while their Mumbai counterparts decided not to fly from tonight, the sources said.

The Kingfisher spokesperson was not available for comment.

At 2.23pm, Kingfisher was trading a percent down at Rs13.8 on the Bombay Stock Exchange, while the Sensex was marginally down at 16,462.

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Economy & Nation Exclusive
Carborundum Universal to invest Rs200 crore for expansion with promising growth prospects

Carborundum Universal has posted strong fiscal results, cut its debt and plans to expand further by investing over Rs200 crore

Carborundum Universal (CUMI) has decided to spend Rs200 crore on its capacity expansion plans. Consolidated net sales for the 2012 fiscal grew by 24%, to Rs1,969 crore, when compared to last year, has compelled the company to expand further. The overall results were driven by strong sales of its largest segment, abrasives, which grew more than 20%, from Rs690 crore to Rs831 crore. Likewise, its second largest business segment, electro minerals, grew from Rs598 crore to Rs727 crore, an increase of 21.57%. This was helped by robust performance of its Russian operations. The operating profits (EBITDA) grew by 29%, from Rs312 crore to Rs402 crore over the course of the 2012 fiscal. Its operating profit margins grew by to 20.42% from 19.60%, indicating margin expansion to the tune of 82 bps.

While its fiscal results were strong, its fourth quarter results were lacklustre, owing to economic conditions over the last three months. Net sales for the quarter ended in March 2012 increased only by 1.09% to Rs523.42 crore, year on year. Its operating profits barely budged and move up only 1.18%. Despite these, its net profits grew strongly, by 14.01% to Rs55.54 crore.

The stock is currently quoting at Rs158, with a market capitalisation-operation profit ratio of 3.68 and a price earnings ratio of 13.67, indicating that growth factors have not been factored in yet.

The company has also managed to reduce its debt-equity ratio from 0.33 to 0.22, an impressive reduction, aided by repaying off long-term debts of Rs41.32 crore. The capacity expansion coupled with reducing debt is a sign of confidence.

The overall results are very good, considering the volatile economic conditions over the last one year. CUMI has been a leader in the abrasives segment for quite a long time now. This is a good sign, as it is not straying from what it is good at. It is now beefing up its core operations further, by investing in capacity expansion as well as a new greenfield plant to meet additional requirement of fired and castable refactories. Refactories are mainly used for ceramics as well as industrial process of manufacturing of fertilisers and cements. It is also used for glass-making and foundries. Earlier, it had invested in Russia and South Africa plants, and the same is expected to be completed this year. It is already a leader in the vitrified bonded abrasives category in Russia.

CUMI is part of the Murugappa Group, one of the biggest conglomerates in south India, that includes cycle manufacturer Tube Investments of India, Coromandel International, EID Parry, Parry Agro Industries to name a few. Carborundum Universal has been delisted from Madras Stock Exchange. However, it continues to be traded National Stock Exchange and Bombay Stock Exchange.

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