Why are lenders to Kingfisher Airlines reluctant to sell shares even though they are entitled to do so?
The consortium of lenders, which includes State Bank of India (SBI), ICICI Bank, Axis Bank, which lent money to the beleaguered Kingfisher Airlines (KFA) in exchange for pledged shares, are apparently wondering about a legal course of action even as they are sitting on pledged shares from Vijay Mallya. According to a report in Business Standard, several lenders are unwilling to invoke their 2.38% pledge in United Spirits. This is bizarre move and makes a mockery of pledging shares. Why are the lenders, who are in the process of recovering their dues, unwilling to sell the pledged shares? What is the whole point of share pledging if it is not sold to recover amount due?
Earlier, the Bombay High Court rejected a plea from United Breweries (Holdings) for putting a halt to share sale by lenders. However, the high court ruled in favour of the lenders and allowed them to sell the shares freely in the open market (http://www.livemint.com/Companies/plxgHKiXScWuTcqKBi696M/Bombay-HC-directs-UBHL-to-furnish-500-cr-guarantee.html). Why are the Kingfisher’s lenders not safeguarding their own interests and balance sheets? State Bank of India (SBI) is one of the largest banks in India and gets regular capital injections from the government. It is the taxpayer who has funded Kingfisher’s loan.
According to the latest shareholding pattern of Kingfisher Airlines, United Breweries (Holdings) has a 14% stake in the airline and it is 100% pledged. The other owners of KFA are Kingfisher Finvest India, Dr Vijay Mallya and UB Overseas. Barring Dr Vijay Mallya and UB Overseas, all the shares have been 100% pledged. Four banks namely SBI, IDBI Bank, ICICI Bank and Bank of India collectively own 8.78% of Kingfisher Airlines, as per latest exchange release.
Of over Rs7,000 crore exposure to 17 lenders, SBI has the maximum exposure of over Rs1,600 crore in the airline. It is followed by PNB (at Rs800 crore), IDBI (Rs800 crore), Bank of India (Rs650 crore) and Bank of Baroda (Rs550 crore).
Equity shares are pledged to the lender when a company wants to borrow money but the lender requires collateral, other than immovable property. So, when the borrower fails to pay off the debt as stipulated in the contract, the lender will sell the pledged shares in the open market to make good the loan. If the lenders are not selling the pledged shares, it defeats the very purpose of using shares as a collateral tool.
You can find several stories we’ve written on Kingfisher here.
If the Nifty closes below 6,010, the current uptrend will be under threat
The market erased most of its gains, but settled marginally in the positive, after engineering major L&T’s quarterly number failed to meet market estimates. If the Nifty closes below 6,010, the current uptrend will be under threat. The National Stock Exchange (NSE) reported a lower volume of 44.78 crore shares and advance-decline ratio of 582:764.
The Indian market opened on a subdued note on concerns about quarterly results from corporates and the movement of the rupee against the dollar. On the other hand, markets in Asia were firm in morning trade as Japanese prime minister Shinzo Abe’s victory in Sunday’s upper house elections improved prospects for more monetary stimulus.
The Nifty opened 19 points lower at 6,010 and the Sensex started the day at 20,097, down 53 points from its previous close. The benchmarks touched their intraday lows in initial trade with the Nifty falling to 6,004 and the Sensex slipping to 20,066.
Meanwhile, the rupee fell by nine paise to 59.44 against the dollar in early trade at the Interbank Foreign Exchange market on higher demand for the greenback from importers amid a weak opening in local equities.
Gains in auto, banking and realty sectors saw the benchmarks emerge into the positive terrain in the first hour itself. The market continued to gain momentum in morning trade on support from technology, IT and auto sectors.
The indices hit their intraday highs in noon trade with the Nifty touching 6,064 and the Sensex rising to 20,265. The market remained firm in subsequent trade.
However, lower-than-estimated quarterly earnings from engineering major Larsen & Toubro (L&T) dragged the indices near their previous closing levels in late trade.
L&T’s first quarter net profit fell 12.5% year-on-year to Rs756 crore. Net sales increased 5% to Rs12,555 crore in June quarter from Rs11,955 crore y-o-y.
The market closed marginally higher on disappointing results from L&T. The Nifty added three points (0.04%) to 6,032 and the Sensex rose nine points (0.05%) to settle at 20,159.
The broader indices settled mixed with the BSE Mid-cap index rising 0.04% and the BSE Small-cap index falling 0.32%.
BSE Auto (up 1.06%); BSE Bankex (up 0.98%); BSE IT (up 0.73%) and BSE TECk (up 0.71%) were the sectoral gainers today. The top losers were BSE Capital Goods (down 5.57%); BSE Oil & Gas (down 1.65%); BSE Power (down 0.91%); BSE PSU (down 0.62%) and BSE Realty (down 0.53%).
Out of the 30 stocks on the Sensex, 19 stocks settled higher. The main gainers were HDFC (up 3.17%); Sun Pharmaceutical Industries (up 2.75%); Mahindra & Mahindra (up 2.63%); Bharti Airtel (up 1.65%) and ICICI Bank (up 1.64%). The main losers were L&T (down 7.46%); BHEL (down 7.05%); Tata Steel (down 2.95%); ONGC (down 2.85%) and Reliance Industries (down 1.59%).
The top two A Group gainers on the BSE were—GMR Infrastructure (up 7.52%) and Century Textiles & Industries (up 7.11%).
The top two A Group losers on the BSE were—Wockhardt (down 9.12%) and L&T (down 7.46%).
The top two B Group gainers on the BSE were—Assam Company India (up 20%) and Baba Arts (up 19.27%).
The top two B Group losers on the BSE were—Gufic Biosciences (down 19.86%) and Sreeleathers (down 15.77%).
Of the 50 stocks on the Nifty, 24 ended in the in the green. The major gainers were HDFC (up 3.42%); IndusInd Bank (up 2.84%); Sun Pharma (up 2.72%); M&M (up 2.59%) and Bank of Baroda (up 2.57%). The key losers were L&T (down 7.60%); BHEL (down 6.97%); Ambuja Cement Co (down 4.49%); ONGC (down 3.31%) and Tata Steel (down 3.24%).
The Asian pack closed mostly higher on Japanese prime minister Shinzo Abe’s landslide victory in Sunday’s upper house elections. Meanwhile, the People’s Bank of China on 19th July scrapped the floor on the rates banks can charge customers while keeping a cap on deposit rates.
The Shanghai Composite gained 0.61%; the Hang Seng rose 0.25%; the Nikkei 225 advanced 0.47%; the Straits Times climbed 0.66%; the Seoul Composite gained 0.48% and the Taiwan Weighted settled 0.54% higher. On the other hand, the Jakarta Composite dropped 0.96% and the KLSE Composite ended flat with a negative bias.
At the time of writing, two of the three key European markets were trading with minor gains and the US stock futures were marginally in the positive.
Back home, foreign institutional investors were net buyers of shares amounting to Rs252.26 crore on Friday while domestic institutional investors were net sellers of stocks totalling Rs229.10 crore.
Mobile VAS company OnMobile Global today said it has closed the deal to acquire US-based Livewire Mobile for $17.8 million, a move aimed to increase its mobile entertainment portfolio in North America. The deal (worth about Rs106 crore) will help OnMobile gain a stronger foothold in the North American market, which is considered a high music consuming market with high average revenue per unit (ARPU). The stock declined 2.07% to Rs28.40 on the NSE.
Country’s largest private firm in the sector, Great Eastern Shipping today said it will add a very large gas carrier to its fleet, taking the number of vessels to 29. The 1994 built vessel is expected to join the company’s fleet in 2015, it said. The stock fell 0.32% to close at Rs214.70 on the NSE.
Indian pharma major’s US-based subsidiary Lupin Pharmaceuticals Inc has received final approval from US Food and Drug Administration (USFDA) for its Metformin Hydrochloride extended release tablets in strengths of 500 mg and 1000 mg, Lupin said in a statement. Metformin HCl ER tablets are indicated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus. The stock fell 0.91% to settle at Rs891 on the NSE.
The appellant did not receive information or his ration card from the Department of Food and Civil Supplies in the GNCTD. The CIC directed the PIO to pay a compensation of Rs5,000 for the loss and detriment suffered by the appellant. This is the 138th in a series of important judgements given by former Central Information Commissioner Shailesh Gandhi that can be used or quoted in an RTI application
The Central Information Commission (CIC), while allowing an appeal, directed the additional commissioner of the Department of Food and Civil Supplies (DFCS) under the Government of National Capital Territory of Delhi (GNCTD) to inquire into a matter where the appellant was neither provided information nor his ration card within a specified time.
While giving this judgement on 4 February 2010, Shailesh Gandhi, the then Central Information Commissioner said, “Prima-facie it appears that the appellant has been deprived of his entitlement and there may be a possibility of corrupt practices being responsible for this. For the loss and detriment suffered by him the Commission under its powers under Section 19 (8)(b) of the Right to Information (RTI) Act orders compensation of Rs5,000 to be paid to the appellant.”
New Delhi resident Ram Asrey, on 19 April 2010, sought information about his ration card from the Public Information Officer (PIO) of DFCS. Here is the information he sought under the RTI Act.
1. Has my BPL card been renewed?
2. Yes or NO?
3. If yes, provide the new number for my BPL card
4. If not, has my BPL card renewal been rejected? Yes or no?
5. If yes, why have not I been provided with the rejection letter?
6. If no, then why have I not received my BPL card?
7. Certified copy of appellant’s application as submitted in 2007
8. Name, designation, phone number, office timings of the officials working in Circle 7.
9. What action would be taken against the officials who have harassed me?
The PIO did not provide any information. Asrey, then filed his first appeal.
During the hearing before the First Appellate Authority (FAA), the appellant stated that since he shifted his residence from one circle to another. He said, he had deposited his below poverty line (BPL) ration card in Bawana circle and has not received his renewed ration card due to which he has to procure ration on slips.
The FAA said, in these circumstances, the case was considered under Clause 11(2) of the PDS Control Order, 2001. He then directed the appellant (Asrey) to contact food security officer (FSO) in Circle 7 for submission of requisite documents. The FAA also directed the inspector to carry out a field visit and, if found eligible, may processed issuance of BPL card.
Asrey, then approached the CIC with his second appeal citing non-supply of correct and complete information by the PIO.
During the hearing, Mr Gandhi, the then CIC, noted that the deemed PIO Ajit Singh to be lying shamelessly. The PIO claimed that on 19 July 2010 he sent the information to Asrey. However, the order issued by the FAA on 29 July 2010 did not mention about any reply sent by the PIO.
Asrey, the appellant informed the CIC that on 3 October 2010, somebody delivered the information at his residence. According to the information, a BPL card no18120080 was issued in the name of the appellant. But Asrey claimed that he never received any card. Mr Gandhi said, “...it appears that sending this information late and trying to avoid it to the appellant may be due to malafide reasons.”
The bench, then directed RTL D'Souza, the additional commissioner of DFCS to inquire into who has got BPL Card no18120080 which was claimed to have been issued and whether any ration has been issued against this card.
While allowing the appeal, Mr Gandhi said, “If rationing has been issued against this card appropriate action should be taken. Mr D'Souza will send the inquiry report to the appellant and the commission before 30 November 2010.”
The bench said, it was apparent that the appellant had been suffering since he had not got his entitlement and the information had also not been supplied to him. “In view of this the Commission decides that the appellant must be compensated for the harassment faced by him in pursuing this matter. For the loss and detriment suffered by him the Commission, under its powers under Section 19 (8)(b) of the RTI Act orders compensation of Rs5,000 to be paid to the appellant,” the CIC said in its order.
Mr Gandhi further said, from the facts before the bench, it was apparent that the deemed PIO was guilty of not furnishing information within the time specified under sub-section (1) of Section 7 by not replying within 30 days. He then issued a show cause notice to the PIO and directed him to give his reasons to the CIC to show cause why penalty should not be levied on him.
CENTRAL INFORMATION COMMISSION
Decision No. CIC/SG/A/2010/002657/10037
Appeal No. CIC/SG/A/2010/002657
Appellant : Ram Asrey
Respondent : Ajay Arora
PIO & Asst. Commissioner
Consumer Affairs, Food & Civil Supplies
GNCTD, Deptt. of Food & Civil Supplies
C Block, Pocket C, Shalimar