Kingfisher Airlines to sell property to cut debt; shares surge 4%

Shares of Kingfisher Airlines rose more than 4 per cent on Monday on Economic Times' report that the cash-strapped carrier would consider proposals, including selling property, to cut its $1.3 billion debt by more than half.

The board of Kingfisher Airlines (KFA) will consider a proposal to cut debt by more than half by selling property, converting loans from its parent company into equity, and changing the terms under which it leases aircraft.

The management of the airline, which has cancelled 200 flights in the past week, leading to fears it is close to bankruptcy, says its plan will result in debt coming down from Rs 6,500 crore to Rs 3,000 crore.

Kingfisher shares had plunged as much as 18 per cent on Friday to an all-time low of Rs 17.7 after the airline said it was dropping unprofitable routes and speeding up a fleet reconfiguration, which would see its daily schedule of flights drop to 300 from 340.

At 10:10 a.m. (0350 GMT), shares in Kingfisher Airlines were trading up 4.33 per cent at Rs 20.50 in a firm market.

The debt-reduction plans to be placed before the board were spelt out in a presentation, which has been reviewed by this paper, to potential financial investors on November 6.

The management is likely to propose a preferential issue of equity to the promoters and other investors, meeting a key demand of banks that are insisting Vijay Mallya, the flamboyant tycoon who owns the airline, infuse equity into the troubled carrier.

Kingfisher is promoted by Mallya's UB Group, which owns United Spirits, India's biggest liquor company. The UB Group will also convert Rs 675 crore of debt into equity as part of the plan to pare debt.

The preferential issue of equity, if approved, will replace a rights issue of Rs 2,000 crore approved by the board in August. Once these plans are approved, Kingfisher will approach banks for up to Rs 500 crore of working capital to buy fuel and pay salaries, according to people familiar with the matter. Kingfisher's lenders have made it clear that the airline would have to come up with acredible business plan.

"Kingfisher is a valued company, but an airline would need fuel, fleet and finance to run the show. Kingfisher should tell us how it plans to streamline its daily requirements," Pratip Chaudhuri, chairman, SBI, said in Kolkata.

SBI is the lead lender to Kingfisher among the consortium of 13 banks. Chaudhuri said banks have asked the airline's owners to bring Rs 800 crore as equity. The company has said Rs 400 crore has been arranged, but Chaudhuri said he wanted to "see the money", news agency PTI reported. He said banks will meet KFA's management on Tuesday.

Over the weekend, reports that the government might move to bail out Kingfisher has met with strong opposition from politicians and sections of industry. "If it's a free market economy, those who die must die," said Bajaj Auto Chairman Rahul Bajaj. The principal opposition party, the BJP, and the CPM have strongly opposed government help to Kingfisher.

Over the next two years, Kingfisher plans to raise close to Rs 900 crore by selling Kingfisher House, the airline's headquarters near the Mumbai domestic airport, and other real estate, and Rs 700 crore more by changing the leases on its aircraft from financial to operating.