Why the aviation and tax authorities, currently busy sealing bank accounts which have been cleaned out anyways, did not hold the assets back on the ground while they could is unknown. Those aircraft flying the Indian flag and by rights should not have been allowed to leave India to be de-registered and then re-registered till the dues are paid
Probably the most iconic of all aircraft in the Kingfisher fleet was VT-KFA. The first of the aircraft delivered to Vijay Mallya’s then start-up aircraft in June 2005, this Airbus-320, factory serial number 2413, was the toast of almost every photo-op and publicity stunt pulled off and reported on by an adoring media who could not lap up the fine food and raiment on offer fast enough.
It was also part of the package put forward by Kingfisher as “security” when they took more by way of funds from the various Indian banks a few weeks ago. Recall the Rs4,000 crore plus value put on “brand” by Grant Thornton for Kingfisher? Well, the brand just flew out, leaving a big void behind. And our Indian banks now hold a brand which isn’t carried even on its own airplanes.
And now, with the curtains rapidly being drawn on a chapter of aviation in India well and truly funded by the Indian taxpayer, this aircraft looking seriously in need of a bath has been spotted on a “return to leasing company” flight in Dublin. Other aircraft from Kingfisher, still sporting UB and Kingfisher colours, have been spotted at other exotic refuel and refit locations as far apart as Shannon/Ireland and Vancouver BC/Canada, doubtless due for a quick repaint and then redeployment elsewhere in the world—maybe even back to India in somebody else’s livery.
The only way to track such aircraft is by the manufacturer’s serial number which in effect does not do anything for the rights of the entities who are owed dues, whether taxes or debts, anywhere in the world. In other words, the aircraft which owes you money could be right in front of you with a brand new registration, and you won’t be able to do anything about it.
How did this happen, were the Indian authorities as always asleep while the planes were being flown out of India, or is it something deeper?
The Internet is now full of photographs of Kingfisher aircraft popping up at locations globally, repossessed by leasing companies, but how did this happen—was the Directorate of Civil Aviation (DGCA) asleep, or hiding behind legalese suited more to let assets escape from India?
We don’t know. We do know, however, that these aircraft were purchased by Kingfisher using public money. They were then sold to leasing companies, which are one line post box numbers behind doors in tax havens, deeply hidden behind corporate veils but certainly provided with banking guarantees by foreign banks and their secretive methods. These sales were then booked as ‘profits’, which looked wonderful on balance sheets, and more money was then raised by selling equity at a premium to the Indian banks and public. Again more taxpayer money.
Meanwhile, the lease rentals were paid in such a way that the aircraft manufacturer kept getting his instalments and the tax benefits of paying lease payments were written into the books in India. And, as though by magic, the same airplanes were shown as assets to take yet more loans. Until one fine day they vanished from India, by a stroke of a pen, deleted from the Indian registry.
Very simply, think of it this way—you take a loan from your father to buy a car. Next day, you sell the car back to a leasing company which provides you with the cost of the car, and blow up the money in a series of big parties. Meanwhile, you keep taking more money from your mother to pay the loan back to your father, both of whom do not know that the car is not in your name anymore. After some time, you stop paying the leasing company the money, and ask your father for more money to buy petrol-tyres-battery and pay the driver, showing your father the family name painted on the side of the car as proof and collateral. On the weekend, when your mother and father have gone to the temple, you sell the car in cash to some new buyer who you have fooled, and then while he is not looking, drive it out of the back door and return it to the leasing company—who repaints the car and rents it back to you. At which point when your parents return from the temple, the new buyer demands a car from them, which now they have to provide. And if it is not confusing so far, at that point you bring the same car again but in a different colour with a new registration, and charge your parents for providing the same car to the new buyer.
Now, and this is the twist in the tale—the leasing company in the first case belonged to a politician friend of yours who had salted the money stolen from your parents. Remember, the aircraft manufacturer has to be paid, in time, always. So what you have to do is to keep pilfering money from wherever possible, preferably your parents, so that the leasing company keeps getting enough to pay the aircraft manufacturer. And to do that you have to make sure that your politician friend keeps the law and the taxman away from you in your home country.
At the end of this cycle, you now own an aircraft free of all liabilities, you also own the leasing company, you have a good history with the manufacturer, you have huge palaces and yachts and vintage cars and more all over the world, and your parent’s name is mud—so all you do is change your surname or the way it is spelt, and start again.
The big problem here is the complicity of the authorities in India. Why the aviation and tax authorities, currently busy sealing bank accounts which have been cleaned out anyways, did not hold the assets back on the ground while they could is unknown. Those aircraft flying the Indian flag and by rights should not have been allowed to leave India to be de-registered and then re-registered till the dues are paid, which due diligence is the job of the leasing company and bank abroad.
Meanwhile, on a personal and sentimental note, goodbye VT-KFA. I got a feeling we are going to see Airbus 320 manufacturer’s serial number 2413 again, in India, as something else, soon.
(Veeresh Malik started and sold a couple of companies, is now back to his first love—writing. He is also involved actively in helping small and midsize family-run businesses re-invent themselves. Mr Malik had a career in the Merchant Navy which he left in 1983, qualifications in ship-broking and chartering, a love for travel, and an active participation in print and electronic media as an alternate core competency, all these and more.)
Residex data shows that in the December quarter, Mumbai and Kolkata have seen a price correction of 0.5%— the least among the cities, while Surat has seen maximum appraisal of 9.4%
Rather than a correction, realty prices seem to be rising in India. The National Housing Bank’s Residex, the residential housing price index which tracks 15 cities points in that direction.
“The movement in prices of residential properties has shown an increasing trend in nine cities and a decline in five cities covered under NHB Residex during the October-December 2011 quarter in comparison to the previous quarter. However, property prices during reporting quarter have not witnessed significant fluctuations/corrections due to moderation in demand, real estate firms/construction agencies holding land banks and a slowdown in launching of new residential projects and/or progress of the existing projects,” says NHB.
Prospective home buyers in Mumbai have little going for them. Residex data shows that in the December quarter, Mumbai and Kolkata have seen a price correction of 0.5%— the least among the cities, while Surat has seen maximum appraisal of 9.4%.
The other cities which have seen a price increase are: Chennai (9.2%), Pune (8.9%), Delhi (8.4%), Bengaluru (7.5%), Lucknow (7.1%), Faridabad (5.8%), Ahmedabad (2.5%) and Bhopal (1.4%). Kochi has seen maximum correction, a sizeable 15.5%, followed by Hyderabad (6%), Jaipur (1.5%), Patna (0.7%), Kolkata (0.5%) and Mumbai (0.5%).
Since the IPO, the DLF management has faltered at every step in executing its grandiose vision, Veritas points out, even as the stock price has crashed 80% from its peak
Veritas, an independent Canadian Research Firm has said in its latest report on DLF that it does not believe the disclosed book equity and asset base of the company. In fact it argues that via its dealings with DLF Asset (DAL), from FY06-07 to FY10-11, the company has inflated sales by at least Rs11,236 crore and its profit before tax by Rs7,233 crore.”
DLF merged with DAL, which was aimed at repaying the massive debt accumulated by DAL. It was tantamount to a bailout, says Veritas, where promoters had to sell their stake to infuse cash in DAL. Most pertinently, DLF had inflated its numbers and Veritas thinks that something is amiss.
According to Veritas, which earlier blew the whistle on the Ambani brothers, “We also believe that DLF has undertaken questionable related-party transactions to boost the value of DAL prior to its acquisition by DLF, thereby subverting the interest of minority shareholders via a higher purchase price for DAL.” It also stated as a matter-of-factly that “If your investment decision incorporates management integrity, then bypassing DLF will be an easy choice,” Veritas said.
DLF, once the poster boy of Indian real estate, continues to destroy shareholder’s money. As is known, the real estate company is trying to undo every expensive move it has made by selling off ‘non-core’ assets in order to bring in cash to meet current obligations. As of December 2011, the net debt of DLF was Rs22,758 crore.
“(DLF) is an organization under duress. Management is scrambling to consummate assets sales, rationalize its land bank and divest non-core operations within five years of a much-publicised initial public offering (IPO)—in May 2007 at a price of Rs525, proclaiming DLF as a builder of modern India, and the best positioned company to benefit from India’s great leap forward,” Veritas said.
“Since the IPO, (DLF) management has faltered at every step in executing its grandiose vision to be a conglomerate with tentacles spread across hotels (the joint venture with Hilton has ended and Silverlink Resorts is up for sale), build mega townships (exited Bidadi in Karnatka and Dankuni in West Bengal), become free cash flow positive by FY10-11 (Rs -936 crore, for the year), build a mega convention centre in the NCR region (exited in 2009), and so on,” the report noted.
DLF valuations are out of sync with reality and investors should sell it off, says Veritas. “At its current stock price, DLF trades at a trailing twelve months enterprise value/earnings before interest, taxes, depreciation, and amortization (TTM EV/EBITDA) multiple of 18.9x. The company has no free cash flow and no credible plan to de-leverage its balance sheet. A slowing real estate market in a high inflation environment and overexposure to Gurgaon—amongst India’s most speculative real estate markets—will create tremendous pressure on the company’s balance sheet”, it added.
Veritas said it believes that DLF is worth half the current market price, assuming things do work out as planned. “In a best case scenario DLF is worth Rs100 per share—less than half its current stock price of Rs226.35—from its core operations and investments, which approximates 1x Veritas adjusted book value of Rs101per share.” One can imagine what the worse case scenario might be.
The only way out for DLF, according to Veritas, is to restructure loans. This has eerie parallels to what Kingfisher Airlines has done and might end up comatose. The other option is to raise capital vis-a-vis a secondary offering, which will dilute shareholding and halt dividends. Shareholders will probably not take this in good stride. As of 29th February, DLF was quoted at Rs226.35 nearly half of its IPO price, and has fallen roughly 80% from its peak. During the same time period, the Sensex has gone up by 29%.
In a recent press release, DLF said, “…it believes that due to the current macro environment, it may take a few more quarters for the company to regain full momentum.”