Companies & Sectors
UB group hugely leveraged; Kingfisher is only one of the problems

Dr Vijay Mallya is seeking a bailout for the nearly bankrupt-Kingfisher. But he has leveraged the group to the hilt, according to our sources

Even as Dr Vijay Mallya, the promoter of United Breweries (UB) group is looking for a bailout for the debt-ridden Kingfisher Airlines, Moneylife learns that he has leveraged the group to the hilt.

According to reliable sources, Dr Mallya and other promoters of the UB Group have pledged over 90% of their shares in Kingfisher and United Spirits to raise Rs592 crore and Rs3,600 crore respectively from lenders.

Dr Mallya and other promoters hold around 59% stake in Kingfisher Airlines and have pledged 90% shares out of this shareholding to raise Rs592 crore. Similarly, Dr Mallya and other promoters have a 29% stake in United Spirits and have pledged 93% of these shares to raise Rs3,600 crore.

Even in the group’s flagship company United Breweries, the promoters’ have pledged 13% out of their total holdings of 75% to raise Rs1,400 crore. UB Holdings Ltd, another company belonging to Dr Mallya is in the same situation. The promoters have pledged 17% shares out of their 53% shareholding in the company to raise Rs72 crore.

As far as Kingfisher Airlines is concerned, it has already been rescued once after some prodding by Dr Mallya's political friends. However, its large debt remains a huge drag on the airline.  "Kingfisher implemented a debt-recast package during the year under review, pursuant to which loans from bankers in excess of Rs1,300 crore and funds from promoters of approximately Rs745 crore were converted into share capital," said Dr Mallya while speaking at the annual general meeting (AGM) of the company.

Following the debt restructuring, State Bank of India (SBI) now owns 6% stake in Kingfisher, while ICICI Bank and IDBI hold 5.5% and 3.8%, respectively. Other banks like Bank of India, Punjab National Bank and UCO Bank hold less than 2% stake in the debt-ridden Airlines.

Lenders, including state-run banks had to convert the debt of Rs1,400 crore into equities at a premium of 60% at Rs64.48 per share to Kingfisher's market price of Rs39.9 a share in April 2011. Considering Kingfisher's closing price of Rs19.85 per share on Friday the lenders already have lost Rs44.63 per share in the company. indeed, it was clear to everybody even when the conversion was done, that this is a black hole. And yet, the politically well-connected owner of the company is seeking government bailout all over again.



Naveen Sehgal

5 years ago

The basic problem of Kingfisher is that it is owned by a person who does what he thinks goods, even by ignoring the facts. While deterioration of rupee and escalating aviation fuel prices in some months of 2011 were two of the major reasons, the acquisition of the Air Deccan in the quest to take up big market share and not learning fast from mistakes is what have been the chief reasons for its problems.

Krishnaraj Rao

6 years ago

Good report! Thanks.

arun adalja

6 years ago

how goverment comes in picture?private firms do their own business and it is not managed efficiently they will make loss and why goverment paid for their lapses?they are charging high fare and everytime they want to increase fares and still losses it is a mismanagement,


6 years ago

Please read the article written by Cuckoo Paul in 18th May 2009

Vijay Mallya's Double Life
Beneath the cheerful opulence is a seasoned warrior battling to save his debt-ridden empire


6 years ago

Vijay Mallya thinks he is Richard Branson of India and behaves like one. But Branson uses brains also. Mallya doesnt! he abuses money, power, name, fame - all at the cost of borrowed money!


6 years ago

10 Lessons derived from KF's chaos:
1. avoid investing in companies whose bosses are lured by Page 3 pics & gimmicks. They lose focus due to the moneybags-prone bees around them!
2. invest in HDFC Bank for the long-term. Why? Simply because it is the only reputed Bnak whose name does NOT appear in the coveted list of 17 (in)famous banks published on the front-page of ET's issue dtd 12/11/11.
3. trade vigorously but do not invest in the high-glamour/globally-loss making aviation sector called aviation;
4. invest in the IPO (whenever it comes) of Indigo Airlines, because it is the only Indian air carrier which is in the green despite all the excuses of all other Indian aviation companies applying to it in the same measure;
5. think ten times before you invest in debt-loving companies, because the Banks/FIs/Government will bail out the too-big-to-fail debt-drunk promoter, but, there is just nobody who will rescue you from the losses you suffer by investing in such debt-crazy companies;
6. prefer mass-consumption stories (like consumables/lingerie/luggage/jewellery & the like) over class-targetting companies like aviation/realty etc;
7. keep off companies where global commodity prices (like crude/ATF prices) have a major say in profitability as do currency movements. They bear the brunt of punitive import costs;
8. avoid investing in companies that have to incur huge capital outflows at regular intervals, like buying latest aeroplanes. Low capital costs & steady demand bring sustainable profits to companies with these characteristics;
9. beware of promoters (with the rare exceptions of proven groups like Tatas,Mahindras,HDFC) who have multiple listed companies under one group: United (Mallya), Essar (who collected public money from frequent IPOs/FPOs in their early days & then 'bought-back' their shares when the fruition of public-money just started). IT is this very egoistic deception of their invincibility that brings down such their day-in-the-sun promoters;
10. invest in cash-rich, zero-debt, fair-promoters, focussed companies which appeal to one's economic common-sense & keep safe distance from India-growth-story based affluence-anticipating companies, because, in India, there are many hurdles before anything & everything takes off!!


nagesh kini

In Reply to pinakin 6 years ago

Thanks Pinakin for the New Ten Commandments.
Apparently all of them rightly apply to KF - Keep away from KF.

I'd add a 11th
Go for companies with steady dividend and bonus; stay invested, do not be carried away by the market ups and downs.

Nagesh Kini FCA

6 years ago

Perhaps for the first time the qualification in the Auditors Report on the erosion in Net worth raised eyebrows. In stead of acting on this promptly, SBI,ICICI,IDBI, PNB and UCO have huge exposures with equity acquisitions at inflated premium. Now the lenders are being arms twisted into increasing their already strained exposure. The equity plus loans have the bankers stakes exceeding the promoters who have already pledged 90% of their equity.
The promoters with minimal stakes of their own are enjoying by bleeding red the other shareholders, lenders, vendors and leaving passengers high and dry.
It is time that the so called "King of Good Times" lets a good Minister/Mantri like Tenali Ramakrishna manage like the Vijaynagar or Birbal with the Mogul empires. Mallaya needs to be delinked from the business that his late father Dr. Vittal Mallaya built it up so well.


6 years ago


Govind Shanbhag

6 years ago

MDT - They say industry i mean company is sick but industrialist is never sick. VM has extracted to full extent using his position, he continues to lead his life who cares if company is bleeding?


6 years ago

he is ruining SBI also , he compelled them to buy shares at premium at rs 180 where as it share price was only Rs 19.89 but why due to the the influence , and pressure of Vijay as he is MP too , loans were converted into share of rs 190 each where as share price was only 19 , most of intrest was waived, and % was lowered much , why such prev ledges to king fisher that too from common man banks and bailout from common man tax money , so that Vijay mallya could spend for night parties , yacht ,women , calenders , for his extravagant luxury from common man money and bank which he common man from village to cities depend upon , We again will pay prices for Vijays luxury , We can Bailout for Vijay mallyas Luxury ,parties and dont want to ruin our bank let vijay mallya use his own billion dollars to save it why he is asking our tax money , SBI has suffered loss of 143 crores because of mallya why r they spending on him so much And no bailout for common people they r left on their own , increase in fuel prices first bailout common people Pranab told while increasing oil price that hard steps r to be taken then why not for kingfisher ,let them face on there own ,if Govt gives bailout it means the Govt is only for corporate s not for common people He is building 30 floor opulant high rise in bangalore, wants to buy Brindavan hotel, raze it and build ultra luxury house, his son can f*** around girls, he can own expensive horses, has time to go to parties



In Reply to SANJAY 6 years ago

he ruined chasteness and simplicity of temples also.

Some years ago Mallya has gold-plated the roof of the sanctum sanctorum of Sabarimala Hill Temple, Kerala. This offering attracted criticism, but the Kerala High Court allowed him to donate 32kg of gold and 1,900kg of copper to gold-plate the temple roof. It reportedly cost him Rs 18 crore.

I am a religious Hindu. However, I think it is a sin to do such things in a temple. God doesnt need gold especially from a person who earns money by selling liquor.


In Reply to Govindan 6 years ago

he is biggest sinner , he thinks he can buy god also , but god knows every thing he will punish


6 years ago

Just the value of the real estate in Sausalito and elsewhere in Europe and Umrika, the yatchs and boats, the paintings, th private planes and most of all the vintage car collection, would be more than enough to pay off quite a few IOUs. The rest with help from the Lord, especially of the Seven Hills. Thing is, will this happen,especially with the NRI status?


6 years ago

Soon, Mallya (Dr. is Hon. which means it's bogus) will be on a lecture circuit dishing out lessons on how to run a perfectly good cash rich business (UB) to the ground while enjoying the good times ... buying up ego-boosting big brands at inflated prices, IPL, F-1, Calendars, Horse racing, Yachts, women, etc.

IT /ED should perhaps look into the acquisitions to figure if the money paid out ended up into his pockets in one of the havens. I personally don't think he's that smart, just a bad businessman with an inflated idea of himself.

Interesting nevertheless.


6 years ago

You can fool some people at all times
You can fool all people at sometime
But you cannot fool all at all times.
Sadly, Here is one gentleman who has managed even that !!! And will continue to do so...

Pension revamped by IRDA—Will the customers stay away?

Pension ULIP products will enter the market after 4.5% per annum guaranteed return has been scrapped, but some guarantee will ensure high exposure to debt and hence returns will not even beat inflation. Will customers shy away?

The Insurance Regulatory and Development Authority (IRDA) has announced new pension guidelines for insurance companies. The guidelines need all pension products to explicitly define the assured benefit that the customer would get at the time of surrender or vesting age. At the time of vesting, the annuity shall be provided by the same insurer who contracted the original policy. On surrender of policy post the lock-in period or on the date of vesting, the policyholder can commute to the extent allowed under Income Tax Act (1/3rd at this time) and utilise the remaining amount to purchase immediate annuity guaranteed for life at prevalent annuity rates, or buy a single-premium deferred pension product.

Insurance companies except Life Insurance Corporation of India (LIC) have been reluctant to launch regular premium pension plans post September 2010. Will anything change after the new guidelines? Will the customer really benefit? Gorakhnath Agarwal, chief actuary, Future Generali India Life Insurance, gives a realistic perspective. According to him, “The new guidelines, though appear to be relaxed in terms of guarantee, may still not achieve the objective of reviving sales of pension products.”

In less than two years there have been a lot of changes in pension ULIPs (unit linked insurance products). From allowing high equity exposure due to ‘no guarantee’ to high debt exposure due to ‘4.5% p.a. guarantee’ to possible continuation of high debt exposure due to ‘non-zero guarantee’, pension products have undergone frequent changes. Here are three hiccups in store for customers along with ‘what could have been better option’:

1.    High exposure to debt will continue – Mr Agarwal says, “Retirement saving is meant to provide protection against inflation. Any kind of guarantee would restrict investment freedom (insurers will invest in debt products in order to meet the guarantee) and hence may not achieve the objective of providing protection against inflation. This might lead to under provision for retirement.”

‘No-guarantee’ option not on the table – Pension ULIPs prior to 1 September 2010 had no guarantee and hence the policyholder had the flexibility of high equity exposure. According to Amitabh Chaudhry, managing director and chief executive officer, HDFC Life, “Would we have liked an option for no guarantee? Yes, since that would have allowed flexibility for the funds to be invested in equity in a higher proportion which would have meant potential higher returns. But I think the regulator is rightly focused on ensuring capital protection for customers who are saving up in a pension plan for their retirement.”

2.    Annuity from same insurer – IRDA may have genuine reasons for enforcing same insurer to continue with annuity phase of the product due to LIC taking 95% burden of it, but where does it leave the customer? According to Gorakhnath Agarwal , “We already offer our deferred pensioners purchase of annuity from our company, but we are still of the view that choice to purchase annuity from any insurer should have continued as it is in the interest of the policyholder and he should be given the opportunity of a competitive deal.”

Annuity at what rate? The captive customers for annuity phase may ensure less motivation for insurers to offer best rate. The annuity rates will be decided at the time of vesting of pension. If at that time another insurer offers better annuity rates, you are struck with your insurer for literally rest of your life. To top if off, annuity in India is taxable which itself is the biggest snag.

3.    Enforced annuity – Pension ULIPs, prior to September 2010, did offer lump-sum payment (taxable). This option was removed post September 2010 regulatory changes. The window of opportunity was left in traditional pension products, but it is now closed. While one-third of the corpus can be taken out tax free at the time of vesting, the remaining two-third will be forced into annuity. Even if you surrender the policy before the policy term, the annuity is mandatory. Mr Agarwal says, “While we appreciate the need of annuitisation of pension corpus, making it compulsory in all cases may lead to problems. The examples are—surrender value is generally too small to buy the pension or the policyholder might be suffering from some critical/ terminal illness, etc. In such cases lump-sum should have been allowed.  In other countries including the UK, lump-sum is permitted in such cases which, of course is subject to tax.

Exit option – Taxable lump-sum withdrawal used to be an exit option, though there are valid arguments against it. Mr Chaudhry adds, “Pensions are meant to accumulate a corpus during your productive years that can be then utilised in a systematic way during your non-productive years. A complete withdrawal leaves the customer open to risk of choosing another investment vehicle based on the right advice at a particularly vulnerable stage in her life. While a lot of us might differ on forcing an option on the customer, I think we should consider the maturity of our market and see this as the right move in the interest of the customer.”  

The million dollar question is whether customers will get attracted to non-zero guarantee even if the returns are low, annuity from same insurer and enforced annuity? A veteran LIC agent summarizes it accurately. He says, “What is the real incentive for customer to go for pension product anymore? They can as well take regular life insurance policy and get the corpus on maturity as tax free. If they wish to lock money in annuity, immediate annuity is an option. If they do not want to lock anywhere, invest in any other instrument. There is flexibility here for high equity exposure in life insurance policy, choosing any insurer for immediate annuity, tax benefits and not worry about locking money forever at any stage.”

Moneylife view is that pension ULIPs prior to September 2010 did not have anything harmful (except for high charges). As the saying goes, “If it ain’t broken, don’t fix it”.




5 years ago

Illuminating. The return on the corpus in case of Pension products are very low and is of the order of 4% to 6% throughout the life time of the Pensioner and corpus being paid to the Pensioner's nominee after the life of the Pensioner.How to step up return on the corpus to the Pensioner and provide for bulk payments for medical and other unavoidable expenes affecting the very life and peace of the Pensioner need to be examined.

Share prices on a downtrend: Friday Closing Report

Nifty to go above today’s high for an uptrend

The IIP numbers for September coming at a two-year low resulted in the market closing lower for the second straight day. We had mentioned in our Wednesday’s closing report that the Nifty may move between 5,160 and 5,325. The index opened with big gap below the lower limit and closed below that level, an 11 day closing low (including today). Today’s fall has been on a seven-day high (including today) volume of 60.52 crore shares on the National Stock Exchange (NSE). If the index is not able to close above today’s high, we may see the downtrend continuing.

Resuming after a day’s break, the Indian market opened lower on a slew of weak corporate earnings reports and concerns ahead of the release of industrial output data for September and food inflation numbers for the week ended 29 October. The Nifty started trade at 5,160, down 61 points, and the Sensex opened 174 points lower at 17,188.

Staying in the red, the market hit the day’s high in the first half hour of trade with the Nifty going up to 5,199 and the Sensex touching 17,279. The downward journey continued with the benchmarks touching the day’s lows on news that IIP for September plunged to a two-year low of 1.9%. At the lows, the Nifty fell to 5,142 and the Sensex was down at 17,097.

The market moved sideways in subsequent trade even as weekly food inflation for the week ended 29th October was marginally lower at 11.81%. The market headed higher in post-noon trade as the key European bourses in the positive ahead of the Italian policymakers vote on austerity measures and a new government assumes charge in Greece. But selling pressure kept the indices lower, with the market closing in the negative for the second day in a row. The Nifty closed 52 points down at 5,169 and the Sensex settled at 17,193, a cut of 169 points over its previous close.

The advance-decline ratio on the NSE was negative at 461:1263.

The broader indices underperformed the Sensex today. The BSE Mid-cap index declined 1.13% and the BSE Small-cap index tanked 1.57%.

BSE Oil & Gas (up 0.79%); BSE Auto (up 0.62%); BSE Healthcare (up 0.18%) and BSE Fast Moving Consumer Goods (up 0.06%) were the sectoral gainers. Rate-sensitive sectors—BSE Bankex (down 3.03%); BSE Metal (down 2.33%); BSE Capital Goods (down 2.32%); BSE Realty (down 2.24%) topped the losers’ list.

Mahindra & Mahindra (up 3.12%); Sun Pharma (up 2.48%); Reliance Industries (up 2.23%); Hero MotoCorp (up 1.85%) and Bajaj Auto (up 1.64%) were the top gainers on the Sensex. The key losers on the index were ICICI Bank (down 4.55%); Hindalco Industries (down 4.31%); Tata Steel (down 4.19%), State Bank of India (down 3.48%) and Larsen & Toubro (down 3.30%).

The best performers among Nifty stocks were M&M (up 3.20%); Sun Pharma (up 2.74%); RIL (up 2.64%); Bajaj Auto (up 1.81%) and Hero MotoCorp (up 1.63%). Axis Bank (down 5.06%); Hindalco Ind (down 4.31%); ICICI Bank (down 4.19%); Tata Steel (down 3.81%) and SBI (down 3.59%) settled at the bottom of the index.

Markets in Asia settled mostly higher on positive corporate news from the US overnight. However, investors were wary that the resolution of the European debt crisis is still a long way.

The Shanghai Composite added 0.06%; the Hang Seng surged 0.91%; the Nifty gained 0.16%; the Straits Times rose 0.14%; the Seoul Composite jumped 2.77% and the Taiwan Weighted climbed 0.80%. On the other hand, the Jakarta Composite lost 0.13% and the KLSE Composite fell by 0.26%.

Back home, foreign institutional investors were net buyers of stocks worth Rs559.04 crore on Wednesday, while domestic institutional investors were net sellers of shares totalling Rs531.86 crore.

India’s largest realty firm DLF on Thursday reported an 11% decline in consolidated net profit at Rs372.41 crore for the quarter ended 30th September, mainly due to higher tax expenses and interest charges. The company had posted a net profit of Rs418.38 crore in the year-ago period, DLF said in a statement.

Consolidated net sales during the second quarter, however, rose by 6.9% to Rs2,532.41 crore from Rs2,369.02 crore, it added. The stock declined 2.25% to Rs228.05 on the NSE.

Aban Offshore has received a firm order from state-owned explorer ONGC for the deployment of jack-up rig Aban II for a period of three years. The total value of this firm order is approximately $57 million (around Rs285 crore). The contract is expected to commence during the first quarter of calendar year 2012. Aban Offshore fell 1.76% to close at Rs421 on the NSE.

Tata Communications has reported a net profit of Rs17.70 crore for the second quarter of the current fiscal, against a loss of Rs. 57.70 crore in the same year-ago quarter. The turnaround was due to strong improvements in revenues and profit margins in its global voice and global data business. The company’s shares jumped 4.17% on the NSE to close at Rs195.


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