UB to use Diageo deal funds to cut KFA debt

The author has posted comments on this articleTNN | Feb 16, 2013, 12.18AM IST MUMBAI: In a U-turn from its earlier stance, the UB group said that it will use the proceeds from the United Spirits-Diageo deal to reduce debt of Kingfisher Airlines as the latter's lenders build up pressure on the spirits-to-airline group. Kingfisher, which stopped flying since last October, owes Rs 7,500 crore to banks and its losses widened to Rs 755.17 crore in the third quarter of FY13 from Rs 444.26 crore in the year-ago quarter.

A UB group spokesperson said, "The group is in discussions with banks on ways to bring down their exposure, interalia, from the proceeds of the Diageo transaction." He, however, added that the group hasn't yet received any formal communication from the banks. Earlier, UB group chairman Vijay Mallya had said that he would not sell the "family silver" to fund the airline. And that the airline would find its own ways to try and get back in the air.

With the government relaxing ownership rules, allowing foreign carriers to buy up to 49% in domestic airlines, the group also held talks with international carriers to sell a stake in Kingfisher Airlines but nothing materialized. The United Spirits-Diageo deal, said the spokesperson, has the support of the lenders.

Bankers, however, hinted at taking a tough stance as their main objective is to use whatever leverage they have on Mallya to get him to repay Kingfisher Airlines's dues. "Why should we sell shares to Diageo when the market price of United Spirits is Rs 1,901," said a bank official.

Diageo had earlier proposed to buy shares of USL at an open offer price of Rs 1,440 per share. Bankers are relying largely on Mallya's personal guarantee and the corporate guarantee by Kingfisher Airlines's holding company to leverage a repayment. The stand taken by bankers is that they have a lien on assets of the guarantee, and guarantors cannot transfer assets to other entities without settling their dues. UB group's statement comes a day after lead lender, State Bank of India, which has an exposure of Rs 1,600 crore to Kingfisher, said that banks can sell shares of United Spirits and other assets of the group held as collateral to recover some loan amount. Last winter, the group agreed to sell a majority stake in United Spirits for $2.6 billion. But some of the promoter entities of United Spirits have given guarantees and, as a result, they are pledged with financial institutions.

The UB spokesperson said, "Banks would work with the group in finding an orderly method of disposal of some of the pledged shares to Diageo, if appropriate."

Source: http://timesofindia.feedsportal.com/fy/8at2Etb0k6dtc46I/story01.htm

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