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Kingfisher crisis: Further conversion of debt into equity not an option now, say banks

Anjana Chandramouly Bangalore | Updated on March 12, 2018

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Banks belonging to the consortium which has funded the beleaguered Kingfisher Airlines have raised concerns over the viability of a further conversion of the airline's debt into equity.

Officials of two lender-banks told Business Line that further debt to equity conversion was not an option that banks would consider for now.

“The last time, the restructuring exercise happened at a very higher rate of Rs 64.4 per share, while the shares are trading at around Rs 21 now,” pointed out an official. “At these rates, we don't think it will be a viable option for the banks,” he added. During the last fiscal, the 13-bank consortium converted debt of over Rs 1,300 crore into equity, thus owning approximately 23.4 per cent stake in the company.

Banks' total exposure to Kingfisher Airlines stands close to Rs 7,000 crore, of which about Rs 4,000 crore is in the form of term loans.

“Though it is true that if all the debt is converted into equity, the company would turn profitable, it will be the last option that we would go for,” said the other official. Right now, “we expect the company which has borrowed from us to service its debt with interest”, he added.

For the 13 banks, selling equity shares to make profits could only be a long-term strategy, which is not applicable in this scenario, pointed out the official. “At this stage, we want the company to bring in more equity,” he added.

It might well be a “catch-22 kind of situation for banks, as it would neither be viable for them to lend more to the company nor let the asset on book run into trouble”, said an aviation analyst. Banks are expecting a commitment from the company, which can be ensured by the company selling its assets or the promoters bringing in more equity through sale of their personal assets or further subscribing to the company's shares, he added.

He said that the Government will take some more time to decide on foreign direct investment in the airline sector. “However, the Government has to give some support to the airline sector as a whole, though not individual companies, as profitability of airline companies during this quarter has not been good,” he explained.

A better quarterly profitability could have given banks some comfort too, he pointed out. At the same time, banks also need some benefit or relief from the RBI to lend to a troubled sector like aviation, he added.

Published on November 14, 2011

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