Kingfisher Airlines is to launch a $250 million GDR issue shortly, and is also in the process of restructuring its debt with a consortium of bankers, chairman Vijay Mallya said on Thursday.
Speaking at UB Holdings AGM, Mallya confirmed the debt recast is expected to be completed in the "next month or so," which would be immediately followed by the GDR issue. Stating that the Reserve Bank of India had sanctioned the debt restructuring plan, he said that the airline is currently working with a consortium of banks to recast the entire debt:
"In broad terms, about 30% of the total debt would be converted by banks into capital," Mallya said. Moreover, UB Holdings also passed a resolution at its AGM to convert Rs 735 crore of loans also into capital. "There would be an interest reduction to an average of 11%," he said. The airline would now have to make the repayment over a period of nine years, with a two-year moratorium. Mallya added that the debt restructuring package also calls for Rs 900 crore of additional facility to be provided by the banks to the airline.
Once the debt restructuring exercise is completed, Kingfisher would immediately launch the $250m GDR issue. "....We are completely committed to fund-raising (GDR issue) immediately after the bank restructure is over," says Mallya. "...We are going to be in the US next week with some preliminary road-shows. We have already met a whole bunch of investors in the US, Europe, Hong Kong and Singapore...All of whom have expressed strong interest in investing in Kingfisher". He said Kingfisher is now casting its net "further and wider" to make sure that when it launches the issue, there is sufficient investor interest to subscribe to it.
Make no mistake, this is a course of action that no airline would take in this market unless there was no choice whatsoever. Kingfisher also wants to reactivate Airbus orders that have been deferred. Mallya knows that if the airline is not refinanced now and allowed to move forward then it will be lost altogether for further investment down the line. One investor based in Hong Kong controlling a very powerful portfolio was pulling no punches when he told Aviation News last week that: “We will not touch the thing unless our man is at the top.” That man? None other than former SpiceJet chief executive officer Sanjay Aggarwal! Aggarwal looks set to join Kingfisher Airlines as CEO (see Aviation News, 30th September 2011). We are also now aware that many middle management jobs are to go in the restructure.
In addition to all of this we have to remember that the alteration of debt-to-equity ratio and investor confidence all depend on the pricing of the rights issue. It is this single factor which will tell how much pressure the airline is under. If the issue is under-subscribed, Kingfisher will remain in deep water. An airline that started off as a big advertising campaign could still come off as one of the largest backfires in corporate history. We shall see but the odds are stacked against Kingfisher and the investors are flexing their muscles.
We will be following this story as it runs but please take a look at APAC news below for more Kingfisher stories from the eventful UB Holdings AGM.