Diageo deal could pull Kingfisher back

Nov 14 2012, 11:12 IST
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Shares in Kingfisher have gained nearly 15% in three sessions since the United Spirits deal. (Reuters) Shares in Kingfisher have gained nearly 15% in three sessions since the United Spirits deal. (Reuters)
SummaryShares in Kingfisher have gained nearly 15% in three sessions since the United Spirits deal.

Indian liquor baron Vijay Mallya's $2.1 billion deal to sell a stake in United Spirits Ltd could throw a lifeline to his grounded Kingfisher Airlines Ltd, although pulling the carrier back from the brink will not be easy.

The flamboyant King of Good Times is keeping his plans to himself for now. However, his decision to give up control of his group's flagship company as Kingfisher heads towards the point of no return suggests that he is unwilling to write off his airline business, bankers and industry analysts say.

The proceeds from Mallya's deal with Diageo Plc will not be enough in themselves to rescue the ailing airline, which has failed so far to find fresh investment to prop it up or a global carrier willing to play white knight.

It could still give him enough to make a piecemeal payment to his creditors and draw them back to the negotiating table for fresh loans and another restructuring of the airline's debt.

The deal has surely changed the mood of Kingfisher lenders and investors from absolute despair to some hope, said a senior investment banker with a European bank in Mumbai, declining to be identified as he was not authorised to speak to the media.

Kingfisher is a liquidity issue and if he is able to inject some liquidity that will get banks to open the lines again, he will definitely do that, the investment banker said. He wouldn't have sold his flagship firm now without a turnaround plan for Kingfisher.

Indeed, shares in Kingfisher have gained nearly 15 percent in three sessions since the United Spirits deal was announced on Nov. 9.

If Mallya is planning to use the liquor deal to rescue his airline, he will need to act quickly.

Kingfisher needs to raise or commit at least $1 billion by Nov. 30, according to the State Bank of India, the leader of a 17-bank consortium that has lent about $1.4 billion to the carrier. The consultancy Centre for Asia Pacific Aviation says Kingfisher's total debt is about $2.5 billion.

Kingfisher Airlines needs a significant cash infusion if it is to be revived, said Amber Dubey, head of aviation at KPMG. Diversion of some funds from the United Spirits deal may be a good first step.

However, he said the airline would need more funds to continue operations on a sustainable basis, he said.

Diageo agreed to buy a majority stake in United Spirits for $2.1 billion after months

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