Collateral given by the promoters and directors of Kingfisher Airlines may not be enough if banks resort to recovery by sale of assets and other measures. Loans guaranteed by directors and others of Kingfisher Airlines is Rs 4,146 crore while its total borrowings (both long term and short-term) were over Rs 8,000 crore, according to Kingfisher’s Annual Report for fiscal 2012.
The troubled airline’s long-term borrowings alone amounted to Rs 5,695 crore, it says.
“The loans were secured by hypothecation of all movables assets of the company (both fixed and current) other than fixed assets acquired on hire purchase/lease basis and aircraft but including helicopters, all trade marks and goodwill of the company, all credit card receivables, IATA collections and other receivables of the company and mortgage of Kingfisher House,” the report says.
However, as the company has stopped operations, the security cover for banks doesn’t mean anything as there are no receivables or collections.
“In effect, the pledged assets may not be worth more than Rs 1,500 crore to Rs 2,000 crore,” said a banking source.
The company has also furnished non disposal undertakings in respect of aircraft taken on finance lease/hire purchase aircraft.
Its auditors report says estimated unpaid overdues to banks and institutions as at March 31, 2012 aggregated to Rs 797.74 crore including devolved guarantees/letters of credit unfunded. Interest aggregating to Rs 51.07 crore for the calendar year 2011 were due to debenture holders as at March 31, 2012.
As part of the restructuring plan in 2011, 13 banks that had lent money were issued 750 million compulsorily convertible preference shares which gave banks 116.33 million of the company’s equity shares at a premium of about 35 per cent to the closing price of the scrip (Rs 48.05) on April 6, 2011. The value of the share subsequently plunged, resulting in huge mark-to-market losses for banks.
Stressed loans of Kingfisher Airlines were then repackaged into subordinated debt.
Under the pretext of a debt recast, the banks converted some of these stressed loan amounts into cumulative convertible preferred shares.