The auditors of UB Holdings have expressed concern over the corporate guarantees of ₹8,707.2 crore extended to lenders and others of Kingfisher Airlines.

“The beneficiaries of such guarantees have invoked the guarantees and are pursuing recovery actions against the company. This may result in loss to the company,” the auditors, Vishnu Ram & Co have said. In the 2014-15 annual report of UB Holdings, the auditors have said no provisions have been made in the accounts for such possible loss.

The auditors also pointed out that had the company recognised these liabilities, the current liabilities of UB would have been higher by that amounts and guarantees under contingent liabilities and claims not acknowledged as debt would have been lower by ₹7,730.9 crore and ₹146.3 crore respectively.

The auditor’s report is expected to come in handy for the market regulator, SEBI which is carrying a probe regarding the company.

They said the company carries investments in certain subsidiaries and an associate company. The carrying value of such investments is ₹255.8 crore. It noted that there are significant declines in the carrying value of these investments and no provisions have been made for such decline in value. Certain subsidiaries also owe to the company ₹75.4 crore. “Net worths of these companies are eroded, impairing the recovery of such loans and advances and the company has not provided for the possible loss on this count.”

The auditors in the annual report also said that the company has shown ₹31.7 crore as due from a banker who has unilaterally encashed company’s deposits lying with it and appropriated the amount towards its claims against a group company. “The possible loss on account of this development has not been recognised in the financial statements.”

An amount of ₹847.5 crore is shown as dues from a financial company which has sold the company’s investments that were pledged with it and appropriated part of the sale proceeds against dues from KFA.

It also said that a finance company still holds custody of 5.91 crore shares of Kingfisher Airlines belonging to the company. While UBHL has challenged the validity of the pledge in the High Courts of Calcutta and Karnataka, failure to get relief will lead to losses.

In the annual report, the management said UB Holdings does not have a whole time director or managing director or a chief financial officer and efforts are being made to fill these vacancies.

It also said that if lenders to the company are successful in classifying the promoter chairman and directors as wilful defaulters, then “it could jeopardize the entire relationship with the banking sector.” It also said one of the main income stream of the company is earning rentals from lease of its property in UB City. “The risk involved is that the Company will not be able to lease its vacant property as long as the restraint order passed by the High Court of Karnataka continues.”

Regarding the future of Kingfisher Airlines which ceased operations in October 2012, the management said sustained efforts are being made to find a suitable investor who could “capitalize on the still strong reputation of the brand.” Till then, UBHL continues to provide lifeline funding to Kingfisher Airlines, it said.

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