UB group hugely leveraged; Kingfisher is only one of the problems
Moneylife Digital Team 11 November 2011

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.

Comments
Naveen Sehgal
1 decade 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
1 decade ago
Good report! Thanks.
arun adalja
1 decade 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,
Mohan
1 decade 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

http://business.in.com/article/big-bet/v...

kanadiga
1 decade 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!
pinakin
1 decade 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
Replied to pinakin comment 1 decade 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
1 decade 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.
D N PRAKASH
1 decade ago
WHY SHOULD THE GOVT. INTERVENE TO RESCUE A PRIVATE BUSINESS? WHEN THE GOVT. REFUSES TO BAIL OUT AIR INDIA, ON WHAT GROUND THE FINANCE MINISTER ASKS PUBLIC SECTOR BANKS TO BAIL OUT KINGFISHER? IT IS NOTHING BUT POLITICIAN-BUSINESSMEN NEXUS IN OPEN. IF KINGFISHER IS GOING TO FAIL LET IT BE TAKEN OVER BY OTHER SUCCESSFUL AIRLINES LIKE, INDIGO, SPICEJET. WHY THE PUBLIC SHOULD PAY FOR VIJYA MALLY'S MISADVENTURES? WHEN FM SAYS HE CANNOT TALK TO OIL COMPANIES REGARDING OIL PRICE HIKE, WITH WHAT MORAL AUTHORITY HE WILL NOW TALK TO PSBs TO EXTEND FURTHER CREDIT?
Govind Shanbhag
1 decade 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?
SANJAY
1 decade 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

http://www.reuters.com/article/2011/11/1...


http://www.moneylife.in/article/why-gove...
Govindan
Replied to SANJAY comment 1 decade 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.
sanjay
Replied to Govindan comment 1 decade ago
he is biggest sinner , he thinks he can buy god also , but god knows every thing he will punish
malq
1 decade 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?
fernglaser
1 decade 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.
Michael
1 decade 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...
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