They hope sane counsel will prevail, at least this time
As speculation continues about the fate of troubled Kingfisher Airlines, rumours are circulating that the government, probably, will bail out the company. However, many activists and citizens have criticised the possible move. Their view is seconded by bankers and bank unions, who earlier had a bad experience with the loss-making airlines. Their concerns have doubled now that Kingfisher has posted a loss of Rs469 crore for quarter ended September 2011.
Former secretary for power and finance, EAS Sarma has written to prime minister Manmohan Singh asking him not use taxpayers’ money to bailout Kingfisher Airlines. He says, “The financial crisis that the airline is facing is evidently a crisis that is created by its own mismanagement. There is no case whatsoever for the government to divert the tax payers’ money. After all, if the airline tries to put the blame on the high taxes imposed on aviation turbine fuel, has not the government taxed the ordinary citizen in numerous ways, including the increase in the price of motor spirit (petrol) and imposition of high level of taxation on day-to-day requirements of LPG, diesel and even kerosene?”
Dr Nutan Thakur, social activist and convener; National RTI Forum, has filed a writ petition in Allahabad High Court, asking the court to direct the government against bailing out Kingfisher. She said, “Firstly, it is a purely private enterprise with the sole motivating factor of profit. Secondly, because both Kingfisher Airlines and its Chairman Dr Mallya have reputation of extreme consumerism, vulgar flamboyancy and personification of a luxurious life. I also gave reference about McDowell Krest (an NBFC) under the UB Group, where Dr Mallya was alleged to have siphoned public money. He later changed the name of the company to Krest Finlease, and declared it bankrupt.”
Bank employees are also up in the arms against the attempts for a possible bailout of Kingfisher. Calling any bailout of Kingfisher Airlines by banks or by the government as 'anti-national', CH Venkatachalam, general secretary, All-India Bank Employees Federation (AIBEA) said, "We have addressed a letter to the RBI Governor expressing our opposition to any further loan to the Airlines by any of the Banks."
"AIBEA has also advised all its nominee Workman Directors on the Boards of the Banks to oppose any further bailout or credit facility to Kingfisher Airlines. In fact the entire loan should be recalled by the Banks. We also demand a parliamentary probe into the purchase of the shares of Kingfisher by the Banks. If the Banks proceed with such proposals to bailout the airlines, AIBEA would launch protest programmes across the country," Mr Venkatachalam added.
The last time too, it is understood that banks bailed out Kingfisher at the specific intervention of the Reserve Bank of India (RBI). While all banks including State Bank of India (SBI), ICICI bank, IDBI Bank and Punjab National Bank which are part of the 13-bank consortium have exposure to KFA have suffered heavy losses, they have decided not to provide a bailout package. Banks have a total exposure of about Rs7,000 crore to Kingfisher Airlines.
Of this, over Rs1,300 crore had been converted into equity during the last fiscal as part of a debt restructuring exercise. Over Rs4,000 crore of the banks’ total exposure are in the form of term loans. These banks now hold a 23.4% stake in the ailing company, which has incurred over Rs7,000 crore in debt. Last time the conversion had happened at Rs64.4 per share, but right now, the shares are trading at an abysmal Rs21.35 (as on 14th November; having slightly improved from its all time low of Rs19.55 on 3 October, 2011), which makes debt-equity conversion unviable.
Bankers have made it clear that Kingfisher’s promoters will have to infuse Rs800 crore worth of fresh equity into the company if they are to consider a second restructuring of existing debt. It is a dilemma for banks: neither is further lending to loss-making Kingfisher viable, nor is it okay to let a company sink where they hold stake.
However, some bankers believe that history may repeat itself this time—RBI and the finance minister may again force them to salvage Kingfisher Airlines. They are, however, hopeful that saner counsel will prevail based on the strong public reaction against bailing out Kingfisher, especially the open opposition by eminent persons such as Dr Sarma and Rahul Bajaj, chairman of Bajaj Auto.
In a conference, Mr Bajaj reportedly said, “I am proud private sector man and I don’t see any logic of bailing out any private sector company either for sake of employees or customers... If Bajaj Auto gets into a mess, would you bail me out? If it’s a free market economy, those who die must die.”
Even SpiceJet, which posted net loss of Rs240.07 crore in Q2 September 2011, is against the idea of Kingfisher’s bailout. “It is the private sector. Why should there be any bailout for a private air carrier. I do not see any logic why taxpayers’ money should be used to bail out a private company,” SpiceJet chief Neil Mills said.
Paulson, the multi-billionaire hedge fund manager, who successfully made money from the sub-prime crisis in 2008, was betting very big on gold
John Paulson, multi-billionaire hedge fund manager, has sold one-third of his total holdings of GLD, an ETF, as of 30 September 2011. From 31.5 million shares or $4.6 billion at the end of the second quarter, Mr Paulson’s investment in GLD was down to 20.2 million or $3.2 billion.
It may be remembered that Mr Paulson made billions of dollars in the US housing market crash in 2008, by buying credit default swaps—a form of insurance that went up in value as the mortgages turned bad. In 2009, Mr Paulson decided that in the post-crash mess, gold would go up in value and it did.
But Mr Paulson has been having a tough time of late. Selling gold may not mean that he believes that gold has peaked. It may only reflect the redemption pressures. Mr Paulson has been struggling to make money in 2011.
The AUM (assets under management) has dropped from $29 billion to $20.7 billion as per filing with Securities & Exchange Commission. Mr Paulson had also bet big on financial stocks but while this worked in 2009 and 2010, it has been a disaster this year. However, he has added Bank of America, to the portfolio.
Gold has been on a continuous rise from 2001 thanks to low interest rates in the US, which leads to negative real interest rates and reduces the attractiveness of US treasuries. Another major hedge fund player who was bullish on gold was George Soros but he sold all his gold holdings sometime near the peak price of gold earlier this year.
Mr Soros clearly dissuades investing in gold for people like us with these two statements: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
“I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever.”
In a remarkable effort to protect traders and ensure systematic balance, MCX contacts MF Global customers directly whether payments have been credited. Will National Stock Exchange and Bombay Stock Exchange, which always take a hands-off attitude to the problems of investors, traders and members, learn from this?
Commodity traders who trade in the Multi Commodity Exchange (MCX) and requested to withdraw money lying with MF Global have been getting strange calls from officials of the exchange. MF Global is a member of MCX and the Indian arm of the bankrupt global firm. Traders are being called to ask whether they have asked for a withdrawal of a certain amount from MF Global and whether the money has actually been credited to their account. When asked about the reason behind this strange call, the exchange official clarified: “MF Global is claiming that they promptly issuing cheques to any customer who is requesting withdrawals. We are calling customers to verify whether they have actually got the money.”
In the Indian context, this is an extraordinary effort from an exchange.
While MF Global has gone bankrupt internationally, the Indian unit is functioning as of now. However, there are concerns about MF Global’s viability in customers’ minds given that the US unit was involved in misusing customer money for proprietary trades. When Moneylife asked Vineet Bhatnagar about the safety of customer money and continuing operations of MF Global in India, he kept mum. The only information about MF Global’s operations came from a plant in CNBC TV18, which was dutifully reproduced in the Mint newspaper. In that, Mr Bhatnagar seemed to answer conveniently structured questions, making the answers sound like a self-serving corporate communiqué. Clearly, MCX’s calls to individual traders whether their cheques have been credited, have been of great help.
To understand how extraordinary the effort of MCX is, just consider how the two national stock exchanges behave. While price rigging and insider trading are rampant, the exchanges are quick to give a short shrift to individual investors about their complaints against brokers and listed companies. Often questions about the patently anti-investor moves of listed companies are ignored. Companies are able to leak selectively information in the media and get away without offering clarification when asked. Brokers easily milk their customers, walking away without paying any price. The exchanges were absolutely silent about the gross abuse of power of attorney by brokers through the boom years of 2006-08. Tens of thousands of investors have got disgusted and left the market, unable to get justice from the exchange, which are supposed to be the first line of regulation. Even members’ problems are dragged on for years and confirmed cases of wrongdoing are not penalised. The only time you hear exchanges talking about investors, is when they want to dip into investor protection fund for worthless events or indulge in tokenism like flagging off Rajdhani trains that supposedly reach out to ‘investors’.
Set against this, it is quite remarkable that MCX, by far the dominant commodity exchange, has gone out of its way to directly talk to customers when the parent company of one of its members, ran into trouble. But, of course, unless there is competition, don’t expect either the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) to step down from their ivory towers and emulate MCX.