Kingfisher Airlines plans to cut debt by selling its property

Kingfisher Airlines Ltd. | Airlines | Travel & Hospitality | BSE: 532747 | NSE: KFA

14 Nov 2011 Evaluate

Kingfisher Airlines, country’s second-largest carrier is planning to cut debt by more than half by selling its property, converting loans from its parent company into equity, and changing the terms under which it leases aircraft. The plan will result in debt coming down from Rs 6,500 crore to Rs 3,000 crore. The company’s 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. SBI is the lead lender to Kingfisher among the consortium of 13 banks. The banks have asked the airline’s owners to bring Rs 800 crore as equity.

Further, the cash-strapped airline cancelled 40 more flights on Sunday taking the total number of cancelled services to over 250 flights in one week putting thousands of passengers to inconvenience.