Kingfisher Airlines needs a capital infusion to
remain viable, its auditors have said, pushing the carrier's shares to
near historic lows on Thursday, amid fierce competition in a
fast-growing airline sector with big expansion plans.
Loss-making Kingfisher, controlled by flamboyant liquor tycoon Vijay
Mallya, disputed any question of its survival, but the airline has
fallen short in its efforts to raise equity and early this year ceded
a stake to its lenders as part of a debt reorganisation.
"After its debt restructuring people thought there could be some
relief, but what happened is that even the general economy went into a
slowdown. All in all we are bearish on aviation," said Jagannadham
Thunuguntla, research head at SMC Capital.
Indian airlines have aggressive growth plans, with orders worth $50
billion in the pipeline to Boeing and Airbus as an economy growing at
about 8 percent spurs business travel and low-cost carriers make air
travel affordable for a middle class long-accustomed to travelling by
rail.
But cut-throat competition and rising costs, including for fuel, means
most big Indian carriers are loss-making, with state-owned Air India
operating on government life support.
In Kingfisher's annual report for the year ended March 31, auditors
B.K. Ramadhyani & Co noted that its financial statements had "been
prepared on a going concern basis, notwithstanding the fact that its
net worth is completely eroded."
It added, "the appropriateness of the said basis is interalia
dependent on the company's ability to infuse requisite funds for
meeting its obligations."
While the annual report is dated Aug. 25, a story on the report ran on
the front page of Thursday's Economic Times newspaper, which market
watchers blamed for a drop of as much as 5 percent in the shares. The
stock trimmed losses to close at 25.2 rupees, down 4 percent.
Kingfisher, whose market value has shrivelled to under $275 million as
its stock has fallen 62 percent since the start of 2011, said lenders
have independently confirmed its viability as a going concern.
"It is incorrect to say that Kingfisher Airlines' auditors have raised
serious doubts about the survival of the airline," it said in an
e-mail to Reuters.
"During the year, RBI (the Reserve Bank of India) had directed the
banks to independently assess the viability of KFA (Kingfisher) and
this was in fact, carried out by the lenders with the assistance of
SBI Capital Markets confirming that KFA is viable i.e. as a going
concern," the airline added.
The auditor said that Kingfisher had defaulted and delayed on loan and
interest payments, and had not regularly deposited dues to authorities
for certain taxes and other items.
Kingfisher said despite some delays in remitting some statutory dues,
there are now no demands that are unpaid. It also said its loans are
considered by banks to be performing.
"Whatever the auditor has said is not very new ... it's talking about
infusion of fresh equity, and this is what the lenders had also
stipulated long time back," said A.P. Verma, deputy managing director
of State Bank of India, which led a consortium to restructure
Kingfisher's debt.
"Unless the long-term funds come, unless they bring down the leverage,
their problems will continue," Verma said.
IN SEARCH OF EQUITY
Kingfisher, India's No. 2 carrier by market share, was, like larger
rival Jet Airways, launched as a premium operator and touts itself as
India's "only five-star airline." Both have stepped up their low-cost
offerings to compete with fast-growing no-frills rivals IndiGo and
SpiceJet.
"If at all in India any vertical of the airline industry can make
business it is the low cost, no frills model, as the Indian consumer
is cost-conscious. Kingfisher being a premium model has not found it
very easy," Thunuguntla said.
Mallya, who also heads United Spirits and owns a Formula One racing
team, was not available for comment.
Kingfisher had planned to raise $250-$350 million through an issue of
global depositary receipts in January, but no deal has been
forthcoming. The company also tried to bring in private equity
investment in 2008 and 2009, but was not successful.
In late August, Kingfisher said its board approved a rights issue of
shares to raise up to 20 billion rupees ($434 million). Analysts say
raising funds for an airline will be difficult in the current market.
The airline has not turned a profit since going public in 2008 through
an acquisition. It has posted cumulative losses since then of 42.83
billion rupees.
Kingfisher has postponed deliveries of several Airbus aircraft set for
delivery in 2010 and 2011 to 2012 and 2013.
Mallya, often referred to as India's Richard Branson, has said the
carrier was in no hurry to take delivery of five Airbus A380
superjumbos it has on order and could push their arrival beyond 2016.
Earlier this year, Kingfisher cut its debt through a restructuring by
issuing shares to 14 banks. Now, the banks including State Bank of
India and ICICI Bank together own 29 percent of Kingfisher. That
exercise converted almost 12 billion rupees of loans into equity and
its debt now stands at about 60 billion rupees.
Kingfisher said long term funds worth 4.75 billion rupees has been
infused into the firm since the start of the year.
(US$1 = 47.58 rupees)
remain viable, its auditors have said, pushing the carrier's shares to
near historic lows on Thursday, amid fierce competition in a
fast-growing airline sector with big expansion plans.
Loss-making Kingfisher, controlled by flamboyant liquor tycoon Vijay
Mallya, disputed any question of its survival, but the airline has
fallen short in its efforts to raise equity and early this year ceded
a stake to its lenders as part of a debt reorganisation.
"After its debt restructuring people thought there could be some
relief, but what happened is that even the general economy went into a
slowdown. All in all we are bearish on aviation," said Jagannadham
Thunuguntla, research head at SMC Capital.
Indian airlines have aggressive growth plans, with orders worth $50
billion in the pipeline to Boeing and Airbus as an economy growing at
about 8 percent spurs business travel and low-cost carriers make air
travel affordable for a middle class long-accustomed to travelling by
rail.
But cut-throat competition and rising costs, including for fuel, means
most big Indian carriers are loss-making, with state-owned Air India
operating on government life support.
In Kingfisher's annual report for the year ended March 31, auditors
B.K. Ramadhyani & Co noted that its financial statements had "been
prepared on a going concern basis, notwithstanding the fact that its
net worth is completely eroded."
It added, "the appropriateness of the said basis is interalia
dependent on the company's ability to infuse requisite funds for
meeting its obligations."
While the annual report is dated Aug. 25, a story on the report ran on
the front page of Thursday's Economic Times newspaper, which market
watchers blamed for a drop of as much as 5 percent in the shares. The
stock trimmed losses to close at 25.2 rupees, down 4 percent.
Kingfisher, whose market value has shrivelled to under $275 million as
its stock has fallen 62 percent since the start of 2011, said lenders
have independently confirmed its viability as a going concern.
"It is incorrect to say that Kingfisher Airlines' auditors have raised
serious doubts about the survival of the airline," it said in an
e-mail to Reuters.
"During the year, RBI (the Reserve Bank of India) had directed the
banks to independently assess the viability of KFA (Kingfisher) and
this was in fact, carried out by the lenders with the assistance of
SBI Capital Markets confirming that KFA is viable i.e. as a going
concern," the airline added.
The auditor said that Kingfisher had defaulted and delayed on loan and
interest payments, and had not regularly deposited dues to authorities
for certain taxes and other items.
Kingfisher said despite some delays in remitting some statutory dues,
there are now no demands that are unpaid. It also said its loans are
considered by banks to be performing.
"Whatever the auditor has said is not very new ... it's talking about
infusion of fresh equity, and this is what the lenders had also
stipulated long time back," said A.P. Verma, deputy managing director
of State Bank of India, which led a consortium to restructure
Kingfisher's debt.
"Unless the long-term funds come, unless they bring down the leverage,
their problems will continue," Verma said.
IN SEARCH OF EQUITY
Kingfisher, India's No. 2 carrier by market share, was, like larger
rival Jet Airways, launched as a premium operator and touts itself as
India's "only five-star airline." Both have stepped up their low-cost
offerings to compete with fast-growing no-frills rivals IndiGo and
SpiceJet.
"If at all in India any vertical of the airline industry can make
business it is the low cost, no frills model, as the Indian consumer
is cost-conscious. Kingfisher being a premium model has not found it
very easy," Thunuguntla said.
Mallya, who also heads United Spirits and owns a Formula One racing
team, was not available for comment.
Kingfisher had planned to raise $250-$350 million through an issue of
global depositary receipts in January, but no deal has been
forthcoming. The company also tried to bring in private equity
investment in 2008 and 2009, but was not successful.
In late August, Kingfisher said its board approved a rights issue of
shares to raise up to 20 billion rupees ($434 million). Analysts say
raising funds for an airline will be difficult in the current market.
The airline has not turned a profit since going public in 2008 through
an acquisition. It has posted cumulative losses since then of 42.83
billion rupees.
Kingfisher has postponed deliveries of several Airbus aircraft set for
delivery in 2010 and 2011 to 2012 and 2013.
Mallya, often referred to as India's Richard Branson, has said the
carrier was in no hurry to take delivery of five Airbus A380
superjumbos it has on order and could push their arrival beyond 2016.
Earlier this year, Kingfisher cut its debt through a restructuring by
issuing shares to 14 banks. Now, the banks including State Bank of
India and ICICI Bank together own 29 percent of Kingfisher. That
exercise converted almost 12 billion rupees of loans into equity and
its debt now stands at about 60 billion rupees.
Kingfisher said long term funds worth 4.75 billion rupees has been
infused into the firm since the start of the year.
(US$1 = 47.58 rupees)
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