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Kingfisher Airlines’ lenders make a mockery of pledged shares

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.

User

COMMENTS

M P Haran

3 years ago

Sell for recovering pea-nuts ?
If the lenders sell and recover peanuts, Mallya goes scotch free!!
Mallya would have set a precedent for corporates to fool the share-holding public, the Market Regulators, the lending banks, image of the country .....

MOHAN SIROYA

3 years ago

There appears to be a concerted and deliberate ploy and understanding between the Lenders , the Aviation Ministry ,Politicains and Vijay Mallya to protect and prolong the survival of King Fisher Airlines. Who suffers, the nation, the tax payers or bank depositors whose money is locked in this debt. Besides, the thousands of employees who are not paid the salary and lakhs of citizens, who had booked the tickets in advance but due to closure neither could fly or able to get back their ticket money.
WHY THE GOVERNMENT, Ministry of Commerce and Company Affairs and Lenders approach the COURT for WINDING UP of the King Fisher Airlines, appoint a liquidator ? This reluctance shows a concerted 'Hidden' stake motivated by malicious motives .

nagesh kini

3 years ago

There's more than meets the eye! No body has ever heard of 100% pledging.
How come that 5 lending bankers despite HC directive choose to ignore it and not sell the shares? Is is because they are sure of realizing weight of paper they are written on - in the case of demated shares not even that?
The MCA/SEBI/RBI should consider banning loans against pledged shares that are no tangible security by any stretch of imagination. Taking KFA ss a classic lesson.

nagesh kini

3 years ago

There's more than meets the eye! No body has ever heard of 100% pledging.
How come that 5 lending bankers despite HC directive choose to ignore it and not sell the shares? Is is because they are sure of realizing weight of paper they are written on - in the case of demated shares not even that?
The MCA/SEBI/RBI should consider banning loans against pledged shares that are no tangible security by any stretch of imagination. Taking KFA ss a classic lesson.

ashwin bahl

3 years ago

is the airline operating ? is it defunct ? does it have any employees left ? what is it actually doing ? Can any1 explain please ? where is the money which the banks lent ?

ANIL KUMAR JALOTA

3 years ago

Political clout of Mallya, using the present regime which controls all the banks named in the report, is in overdrive. How many CMDscan face the Banking Deptt and /or ministers/MPs working on behalf of corporate?

Anil Agashe

3 years ago

What better do you expect from idiot who converted their loans into equity and at premium, when the whole world knew that the game was over!

REPLY

nagesh kini

In Reply to Anil Agashe 3 years ago

Precisely Anil.
The lending bankers need to come out clean with how and at what rates each of the company shares are valued as security - surely on the same lines as the forever and long loss making KFA at an absurd premium. The one who provided the Valuation needs to be hung by the nearest lamp post as also those who advanced the crores!

Sensex Nifty in no man's land: Monday Closing Report

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.

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