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Kingfisher Kicks Off Move To Raise Over $200M

11 January, 2010

Vijay Mallya-led Kingfisher Airlines Ltd has initiated talks with investment bankers to raise upwards of $200-million by April. The company may be exploring options such as GDR, rights issue or private equity placement to raise the capital.

“We have begun talking to investment bankers and fund-raising within three to four months is a possibility,” Ravi Nedungadi, President & CFO, UB Group, confirmed to VCCircle. “The deal size has not been finalised yet but we will be looking to raise upwards of $200 million,” he said.

He, however, said, the airline had not yet identified any specific channel for the exercise. “As in the case of United Spirits, we will have parallel discussions with private equity even as we explore GDR or a rights issue or any other instrument,” he added.

In 2009, UB Group’s United Spirits Ltd (USL), the liquor business of the beer-to-airline conglomerate, concluded sale of treasury stock on the bourses to raise funds for paying down a part of the Whyte & Mackay acquisition debt. The company was also in simultaneous discussions with three private equity giants–KKR, Capital International and Blackstone–but it subsequently chose the public market route to raise capital.

Kingfisher is believed to be in discussions with 3-4 private equity funds including an Abu Dhabi sovereign wealth fund, Temasek, Carlyle and TPG. In fact, some of these talks have been continuing for more than a year. However, Mr Nedungadi declined to identify any specific names in the private equity industry that the airline was talking to.

Kingfisher had, in August 2009, taken the board approval to raise $100 million through global depository receipts (GDRs) and other means in addition to the Rs 500-crore rights issue. It also has the board approval to raise the authorised share capital from Rs 500 crore to Rs 1,000 crore. Various media reports have pegged the fundraising at $300-400 million. The promoter group at Kingfisher holds over 66% in the company.

The flamboyant alcoholic beverage tycoon Vijay Mallya and his UB Group has steered clear of private equity deals till date citing a lack of appetite for “selling equity cheap”. Further, some of the PE investors have asked for tough corporate covenants as a condition for investments. Long-time Mallya watchers say, this is unlikely to find acceptance with the man even as he has struggled with financing the airline for a while now.

Meanwhile, there are unconfirmed reports that big financial investors behind a prominent Asian airline could participate in a public market offering by Kingfisher and prepare the ground for flipping the shares when foreign direct investment (FDI) opens up in domestic aviation.

The shares of Kingfisher were trading at Rs 65.45 at close of trading today, up by 0.31%, with a market capitalisation of Rs 1,740 crore.

Kingfisher, which acquired pioneering low cost carrier Air Deccan in 2007, has a debt of $1.2 billion (Rs 5,640 crore) on its books as on September 2009. Its creditors include ICICI Bank, State Bank of India, Punjab National Bank and UCO Bank. It reported losses of Rs 418.8 crore for the quarter ending September last year. Interestingly, the airline has been suggesting that it might report a quarterly operating profit before the end of 2009-10.

The airline, along with its peers like Air India and Jet Airways, has been suffering from losses due to the slump in the aviation sector. While Air India is getting an equity infusion from the government provided it adheres to its strict riders, Jet also got an approval to raise $400 million from foreign investors. The Indian airline industry has been suffering from increased competition and rising fuel bills.


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