Billionaire Vijay Mallya-led Kingfisher Airlines received a huge boost when over a dozen commercial banks that had
lent heavily to the debt-ridden
airlines , decided to convert their debt into equity - and that too, at a whopping 60 per cent premium to the current stock price - as part of a debt restructuring plan sanctioned by the Reserve Bank of India (RBI). However, the move has raised many eyebrows.
These banks, which include State Bank of India (SBI), ICICI Bank and IDBI Bank, have been allotted a total of 116.3 million shares constituting 23.4 per cent of the equity of the Vijay Mallya-led airline. According to the debt recast package (DRP), the consortium of banks agreed to convert 7.5 crore compulsorily convertible preference shares (CCPS) to equity shares at Rs 64.48 per share.
In the process SBI has picked up 5.68 per cent stake worth Rs 182 crore, ICICI Bank 5.3 per cent stake worth Rs 170 crore and IDBI Bank converted CCPS worth Rs 112.5 crore. In all, debt of Rs 750 crore has been converted into equity by the banks. The other banks include Bank of India, UCO Bank, Punjab National Bank, United Bank of India, Bank of Baroda, Vijaya Bank, State Bank of Mysore, J&K Bank and Corporation Bank. "(This pricing is) in accordance with the pricing guidelines prescribed under the Securities & Exchange Board of India (Sebi) regulations. In terms of the Sebi regulations, the relevant date for the purpose of computing the price upon conversion is March 1, 2011, which is the date 30 days prior to March 31, 2011," Kingfisher had said to the stock exchange in a filing on March 31.
On March 31, the Kingfisher share had closed at Rs 39.90, though it had ruled high during the rest of the year. The 52-week high was Rs 91. To some analysts Rs 64.48 a share was a high conversion price compared to the share price of the company when the shares were allotted. Thus banks have suffered financial loss to enable Kingfisher de-leverage its balance sheet, they alleged.
Kingfisher did not respond officially to Mail Today's query but according to officials the valuation was fair and as per laid out guidelines. UB group chief financial officer Ravi Negungadi while justifying the pricing told a wire agency that even UB Group companies, which had lent to Kingfisher were allotted shares at the same price.
Kingfisher Finvest India and United Breweries (Holdings) Ltd have also converted approximately Rs 745 crore debt into equity. The balance debt would be repaid over nine years. This debt recast exercise has de-leveraged Kingfisher's balance sheet and its total debt has now been cut to Rs 6,000 crore. "Conversion of debt by lenders into equity always happens and it is beneficial for both the banks and the airline. There is no problem in the valuation and banks are not at loss. They could have lost all their money in case the airline was declared sick," said S.P. Tulsian, a veteran analyst.
"The company has shown considerable improvement in performance and the banks will benefit from the equity, though there was no compulsion on them to turn the debt into equity," he said. Kingfisher's debt recast was worked out by SBI Caps. Following the news, the Kingfisher stock on Thursday touched its one month intraday high of Rs 49.25, though the stock closed at Rs 47.45, down 1.25 per cent. Kingfisher told the stock exchange that post-allotment of fresh equity the paid-up equity has risen to Rs 498 crore from Rs 266 crore.
Courtesy: Mail Today
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