(Adds background, comment from Competition Commission head)
By Anirban Chowdhury
MUMBAI--Kingfisher Airlines Ltd.'s (532747.BY) parent, UB Group,
has proposed to the now-grounded airline's lenders that they may
sell shares in one of the group's companies to Diageo PLC (DGE.LN)
to recover part of the carrier's loans.
Diageo in November agreed to buy an up to 53.4% stake in UB
Group's United Spirits Ltd. (532432.BY) for $2 billion, or 1440.00
rupees a share. Some of USL's shares are also pledged with
Kingfisher's banks to back the carriers' loans.
Liquor maker United Spirits' shares closed 0.4% up at 1901.70
rupees on the Bombay Stock Exchange Friday, compared with a 0.2%
fall in the benchmark Sensitive Index.
UB Group spokesman Prakash Mirpuri said Kingfisher's banks
"explicitly support" USL's deal with Diageo, and the lenders would
see if there was "an orderly method" to dispose of the shares.
Neither Kingfisher's top lender, State of Bank of India, nor
Diageo immediately commented on the proposal.
The combined value of shares that USL and another UB Group
company, Mangalore Chemicals and Fertilizers, pledged with
Kingfisher's banks is 5.0 billion rupees ($92 million), Shyamal
Acharya, deputy managing director at State Bank of India said
recently.
Kingfisher has put up 65 billion rupees worth of collateral
against the loans, which include real estate, shares and guarantees
given by group companies and Kingfisher Chairman Vijay Mallya.
Its lenders said Wednesday that they were planning to recall all
their loans, worth 70 billion rupees from the airline, as it had
failed to convince them of any business plan to stay afloat or
raise funds.
A recall is a demand for immediate repayment of loans, failing
which, banks will go through a legal process to take control of
shares and assets a company has put up as collateral against the
debt.
Kingfisher has incurred losses since its inception in May, 2005.
The airline started with aggressive expansion plans, buying costly
planes and a stake in then leading budget carrier Air Deccan.
But its business plummeted soon, due to high input costs, cut
throat competition and high debt. The carrier owes more than $2.5
billion to lenders, suppliers, employees and the Indian
government.
On Oct. 1, 2012, its employees went on strike because they
hadn't been paid in months, forcing the airline to cancel all
flights. The government later deactivated its license.
Even if the lenders accept the proposal to sell pledged USL's
shares to Diageo, it may still take a while for the transaction to
happen as the Diageo deal itself is stuck over regulatory
issues.
The government's antitrust body has queried USL on the deal,
saying this might give Diageo an inordinate control of India's
liquor market.
"The deal hasn't even come to the board yet," Ashok Chawla,
chairman of the Competition Commission of India said Friday.
Write to Anirban Chowdhury at anirban.chowdhury@dowjones.com
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