United Spirits to face heat if Kingfisher Airlines left to flounder

If billionaire Vijay Mallya does not infuse cash into the cash-strapped Kingfisher Airlines Ltd or find other ways to mitigate the trouble at the airline, the crisis will have a spillover effect on his other group companies, say analysts.

Take the case of United Spirits Ltd (USL), the flagship alcohol beverages company of the Mallya-led UB Group. The company, say analysts, will come under severe stress if Kingfisher is allowed to flounder.

Though USL has not directly lent to Kingfisher, it has a current outstanding debt of close to Rs 400 crore towards United Breweries (Holdings) Ltd, the group’s holding company, which in turn has supported Kingfisher in a big way.

UB Holdings has around Rs 13,000 crore exposure in Kingfisher — Rs 4,000 crore through debt and equity and Rs 9,000 crore through corporate guarantees to banks and aircraft lessors.

“If Kingfisher Airlines is left to flounder and were to close down, the financial institutions do have recourse. As much as Rs 835 crore of corporate guarantees have already been revoked by certain banks and aircraft lessors and UB Holdings is in active discussions in this regard with the beneficiaries,” a senior member of a corporate advisory firm which has worked with Kingfisher told Business Standard.

UB Holdings, along with a clutch of a promoter-led companies, holds close to 28 per cent in USL of which as much as 98 per cent has been pledged. USL itself is in an uneasy situation of leverage of little over two times under a debt of Rs 8,600 crore and is working on a few options to deleverage to ease the interest outflow. There has been repeated buzz in the market that global spirits firm Diageo Plc is in active discussions with Mallya to pick up stake in USL.

A senior management official of USL said that by 2010-11-end, the company had a total exposure of close to Rs 370 crore towards UB Holdings, which it was yet get back. “It has been extended. During 2011-12, there have been no fresh advances towards UB Holdings, but USL has a current account exposure of around Rs 25 crore as UB Global (another group firm) does lot of exports on behalf of USL,” the official, who did not want to be identified, said.

According to a senior investment banker who closely tracks the UB Group, it is imperative that Mallya infuses at least Rs 1,200-1,500 crore equity into Kingfisher Airlines at the earliest, lest the crisis will have a cascading effect on his other group companies. “As I understand, a strategic partner has to take an exposure in Kingfisher and leverage it as a feeder in India for its global operations,” the banker, who also requested anonymity, said. .

Kingfisher has been saddled with a debt of close to Rs 9,000 crore and since November 2011, it was forced to curtail operation by a fifth. It currently operates 12 aircraft from the earlier 66, and has reduced daily flights to close to 90 from the earlier 360.

The company has been maintaining it is continuing its operations through a holding plan until recapitalisation happens. It is also looking forward to government for allowing foreign direct investment in the civil aviation sector. A spokesperson for Kingfisher Airlines said the airline was doing all things possible to keep its operations afloat amid all odds.