Indian banks have begun seizing assets controlled by flamboyant Indian business mogul Vijay Mallya due to debts run up by his failing Kingfisher airline.

Indian banks seize assets from mogul Mallya

POSTED: 12 Aug 2013 9:24 PM
– AFP/ec

Indian banks have begun seizing assets controlled by Indian business mogul Vijay Mallya due to debts run up by his failing Kingfisher airline.

MUMBAI: Indian banks have begun seizing assets controlled by Indian business mogul Vijay Mallya who could lose his luxury Goa holiday home over debts run up by his failing airline, a report said Monday. Lenders to his Kingfisher airline took possession of one of the group’s corporate offices, Kingfisher House, in suburban Mumbai, the Economic Times said, quoting an unnamed bank official.“Banks have already recovered some money, selling shares and would also look at attaching other physical assets, including Kingfisher Villa in Goa,” the official was quoted as saying.

A notice announcing this was pasted on the building’s doors, it added.

Shares in Kingfisher fell as much as 4.82 per cent to 3.75 rupees, close to their lifetime low on Monday.

Kingfisher’s spokesman Prakash Mirpuri was unavailable for comment when contacted by AFP.

The carrier, whose planes have been grounded since October, has never made a profit since it began flying in 2005 and it owes vast sums to banks, airports, fuel suppliers and its staff.

Kingfisher has a number of real estate assets that it put up as collateral against its loans, including its offices in Mumbai.

In February, banks started recalling the outstanding loans, estimated at $1.5 billion, which paved the way for the sale of Kingfisher assets held as collateral.

Lessors have already taken back most of the planes which Kingfisher operated, as they were on lease, according to India’s civil aviation regulator.

Mallya, a one-time billionaire known for his flamboyant lifestyle, made his fortune in the family liquor business and controls an empire spanning beer, Formula One, fertilisers and engineering.

Mallya shut down the low-cost airline Kingfisher Red in September 2011 to cut down on losses.

With operations of the main Kingfisher airline shut since last October, it is unclear how many of the airline’s 4,000-odd staff — most of them unpaid for months — are still employed.

Mallya is desperate to find an outside investor to help get the airline running again.

Last updated: August 12, 2013 7:27 pm

Creditors slap competing claims on Kingfisher Airlines

By Amy Kazmin in New Delhi

Indian banks owed about $1.4bn by Kingfisher Airlines have taped a notice on its headquarters, claiming the building was to be seized to recover some unpaid debts of the grounded carrier owned by liquor baron Vijay Mallya.

But lenders will face an uphill struggle both to take genuine control of the property near Mumbai’s domestic airport and to sell it on. The building, dubbed “Kingfisher House”, has also been claimed by Indian tax authorities seeking to recover some of the grounded airline’s unpaid service taxes.

The conflicting claims of creditors over the prime Mumbai office building underlines how the fate ofKingfisher Airlines

has been sealed only eight years after it took off to great fanfare. Even once-optimistic aviation analysts now admit it has no prospect of ever flying again.

“Any restart to me looks impossible,” says Kapil Kaul, chief executive in India for the Centre for Asia Pacific Aviation. “Before the lenders had initiated repossession, we considered the restart of the airline as an outside chance. Once the lenders started taking properties, we think it’s impossible.”

Despite his airline’s financial woes, Mr Mallya has always been known for his luxurious lifestyle. As the living embodiment of his flagship Kingfisher beer’s tagline, “the King of the Good Times”, he enjoys partying with Bollywood stars at his beachfront mansion in Goa, and on board his luxury yacht, the Indian Empress, which he sold two years ago but can still charter 30 days a year.

In 2011, the tycoon flew on his plush corporate jet to New Zealand to collect three bottles of century-old whisky left behind in Antarctica by the polar explorer Sir Ernest Shackleton, then carried it to Scotland, so he could recreate the vintage tipple for his drinks company Whyte & Mackay.

Yet banks’ attempt to collect on the unpaid dues of Mr Mallya’s airline will be a test for India’s legal system, and its ability to provide recourse to the consortium of 14 lenders, led by the government-owned State Bank of India. It is likely to be a protracted, difficult process.

“There is no precedent for this,” says one Mumbai-based banking industry analyst who asked not to be identified. “I don’t recall any business so big or high profile with lenders trying to oversee an orderly shutdown like this.”

Mr Kaul estimates that lenders, which took a $445m stake in Kingfisher through a debt-to-equity swap in a 2010 restructuring, have already recovered about $200m from selling pledged shares in other parts of Mr Mallya’s United Breweries Holdingsgroup earlier this year. But he says further recoveries will be far tougher.

Mr Mallya is furious at the grounding of his beloved airline, and is expected to battle the seizures of its properties every step of the way. “What were easy pickings on the table from a liquidation perspective has largely been done,” Mr Kaul says. “Beyond that, it will get complex and take a long time.”

In theory, Indian law permits lenders to easily foreclose on assets pledged as security against unpaid loans. Kingfisher’s lenders also have so-called “personal guarantees” from Mr Mallya, which technically allows them to seize any of his personal assets against the airline’s unpaid loans.

But, in practice, loan recoveries can be stalled for years, if borrowers go to court to battle against the foreclosures. India’s debt recovery tribunals, established to help adjudicate such disputes – and to which Kingfisher’s lenders have sought recourse – have a backlog of nearly 43,000 cases, with a combined value of nearly $24bn.

“The issue is how implementation of the law proceeds rather than the law itself,” says the Mumbai-based banking analyst.

Even when loan defaulters’ assets are eventually seized, banks often find it difficult to sell them on, as prospective buyers fear subsequent litigation from former owners.

“Finding a bidder for those properties is very challenging, even for real estate assets,” says the banking analyst. “Nobody really wants to get into the argument.”

Creditors are also staking claims on some of the cash that Mr Mallya’s United Breweries received from UK-based Diageo for the UK-listed group’s acquisition of a 25 per cent stake in his drinks group, United Spirits.

The scramble for assets is an unfortunate end to an airline that was popular among Indian fliers for its attentive service, but was finally undone by the combination of an overambitious expansion, coupled with surging fuel prices, bitter fare wars and the poorly timed acquisition of debt-laden budget Deccan Air.

Kingfisher was forced to stop flying in October 2012, after engineers, who had not been paid for seven months, refused to certify aircraft as safe, a stoppage quickly joined by pilots and other cabin staff.

The carrier was grounded only weeks after New Delhi decided to allow foreign airlines to take stakes of up to 49 per cent in Indian carriers, a reform Mr Mallya long advocated so he could find a partner to invest fresh capital into his popular but financially ailing carrier.

“The foreign direct investment approval finally came too late for Kingfisher,” says Mr Kaul at the Centre for Asia Pacific Aviation. “Had it come a little earlier – a year or six months earlier – there would have been a chance.” Instead, as one of the carrier’s executives says: “The lawyers will make a lot of money.”