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.
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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 .....
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 .
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.
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.
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!