Kingfisher Debt Crisis, Kishore Biyani Debt Crisis

Debt Crisis Analysis of Various Organizations

1/30/2014

Ammar Kanchwala

Table of Contents
Quick Facts of Kingfisher fiasco .................................................................................................................... 2 History ........................................................................................................................................................... 5 Stars of Crisis ................................................................................................................................................. 6 Accumulated Debt ........................................................................................................................................ 6 Payment Problems ........................................................................................................................................ 6 Balance Sheet................................................................................................................................................ 8 Competitor Analysis ...................................................................................................................................... 8 Comparison with competitors ...................................................................................................................... 9 SWOT Analysis............................................................................................................................................. 10 Strengths ................................................................................................................................................. 10 Weakness ................................................................................................................................................ 10 Opportunities .......................................................................................................................................... 10 Threats .................................................................................................................................................... 10 Conclusion ................................................................................................................................................... 11 Kishore Biyani Debt Crisis: .......................................................................................................................... 12 Vishal Retails Debt Restructuring: .............................................................................................................. 13

Quick Facts of Kingfisher fiasco

Kingfisher shares rose 2 per cent despite the company reporting widening of the net loss for the quarter ended December 2011. Here are ten things you need to know about the present financial situation at the company: Debt-laden Kingfisher Airlines said that its net losses almost doubled in the last quarter of 2011, plunging it further into a financial crisis that threatens its survival. The company posted a net loss of Rs. 444 crore ($88 million) in the three months to December, compared with Rs. 254 crore in the same period a year earlier.

Sales fell about 25 per cent to Rs. 1,342 crore from Rs. 1,790 crore, while interest charges on its huge debt pile (of over Rs. 6,000 crore) rose to Rs. 350 crore from Rs. 340 crore a year earlier. The company has cut capacity by 5 per cent in the December 2011 quarter.

 The companys share price rose 2 per cent on Thursday and has gained 25 per cent over the past 3 months on hope of a revival plan and permission for foreign airlines to buy into the company.

Kingfisher has never posted a net profit since launch in 2005. However, since most airlines post net losses due to surging fuel costs, investors track a metric called EBITDAR which means earnings before interest, taxation, depreciation, amortization and rental costs. Most airlines lease aircrafts and do not own them. Kingfisher Airlines reported an EBITDAR profit of Rs. 125 crore against Rs. 284 crore in December 2010.

Kingfisher chairman Vijay Mallya is expected to discuss with lenders a new restructuring package after SBI Caps, an investment bank and subsidiary of State Bank of India, gives its report on the viability of the airline.

State Bank of India and other public sector banks like Punjab National bank have declared the Kingfisher Airlines loan as a non-performing asset. This means, it is not generating any interest income for banks. SBI has an exposure of close to Rs. 1,500 crore while PNB had Rs. 435 crore exposure to the debt laden carrier.

 Kingfisher Airlines has pledged various assets to banks in a bid to raise cash. The company had to hypothecate the Kingfisher brand to banks with an estimated value of Rs. 4,100 crore. Hypothecation is a collateral given to lenders to secure debt.

Vijay Mallya, chairman, Kingfisher Airlines, has given a personal guarantee of Rs. 248.97 crore, while United Breweries Holdings, which he heads, has provided a corporate guarantee of Rs. 1,601.43 crore.

In addition, Kingfisher has provided a pooled collateral security of Rs. 5,238.59 crore, which includes Kingfisher House in Mumbai, Kingfisher Villa (Goa), and hypothecation of helicopters.

History Kingfisher Airlines Ltd. (KAIR) is a private airline based in Bangalore, India. Owned by Vijay Mallya of United Beverages Group . Tag line- FLY THE GOOD TIME. Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320. It started its international operations on 3 September 2008 by connecting Bangalore with London. Kingfisher Airlines is one of the only seven airlines awarded 5-star rating by skytrax. Kingfisher operates 400 daily flights with regional and long-haul international services. In May 2009,KFA carried more than 1 million passengers, giving it the highest market share among airlines in India. Until December 2011,KFA had the second largest share in Indias domestic air travel market. First Indian Airlines to have in flight entertainment systems on every seat with guest being able to watch TV in flight.

Stars of Crisis The start of the crisis was the freezing of the bank accounts of the airline by the Income Tax Department. As on 10th Jan 2012, Kingfisher Airlines has service tax arrears of 60 crore. KFA has not been depositing service tax collected from passenger with the department since November 2011 on regular basis and instead has been diverting it for other purpose on regular basis. Accumulated Debt KFA has a debt of Rs 8030 crore. KFA has been loosing money from day one and has accumulated losses around RS 8000 crore. Cumulative due exceeds Rs 15000 crore. Payment Problems Kingfisher Airline has staff strength of 6,000 and spends 58 crore on salaries a month. Airlines delayed salaries of its employees in August 2011, and for four months in succession from October 2011 to January 2012. Kingfisher also defaulted on paying the Tax Deducted at Source from the employee income to the tax department. HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-payment of dues.

 Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues(250 cr). Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time. As a result, Kingfisher had to return the A320 aircraft to GECAS. Kingfisher received a notice from the Airports Authority of India on February 2012 regarding accumulated dues of 255.06 crore. Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks. By Feb 2012, Kingfisher has been declared NPA (Non-performing asset) by following banks SBI Bank of Baroda PNB IDBI Central bank BOI Corporation Bank

Balance Sheet

Competitor Analysis

Comparison with competitors

SWOT Analysis
Strengths

Strong brand value Support from parent company Add 1 million passenger created a year
Weakness

Financial issue due to heavy Debt. Laying of employees caused a bad image.

Unable to generate expected returns on investment done. Overspending of funds.

Opportunities

The Indian aviation industry is growing at a rate of 24% per year. Large number of domestic untapped routes. Disposable income especially in middle class has increases.
Threats

Rising fuel cost. Govt. policies Least cost carrier.

10

Conclusion Financial crisis of KFA was due to following reasons: High fuel prices. Huge interest outgo due to heavy investment in purchase of aircraft. Overspending/Expenses Highly competitive industry Business model was not effective. Deregulation Act. Recession-lose passenger(High operation cost due to low demand).

11

Kishore Biyani Debt Crisis: The company is looking to raise R800 crore by selling stake in some fashion brands. Currently, the company is in talks with private equity players for a stake sale in fashion brands Biba and AND. Future Group has 50% stake in French apparel company Celio and UKs footwear company Clarks. The company has 26% stake in menswear brand Turtle. Future Retail has a debt of R4,500 crore and has been maintaining that it is comfortable with its current debt position. Biyani thinks fashion vertical would be a Rs 7000-crore business this year, which is far bigger than his other verticals such as food and groceries and home and electronics. We believe Fashion at Big Bazaar will be contributing Rs 3,000 crore and Future Lifestyle Fashion the balance Rs 4,000 crore next financial year, he says. Biyani's businesses fall into three baskets - fashion, food and grocery, and home and electronics, which are housed in two listed entities, Future Lifestyle Fashions and Future Retail, respectively. The five-year-old investments in AND and Biba earned him returns of 24 times and 5.5 times, respectively. Future Lifestyle Fashions had 22.9 per cent stake in AND and 25.8 per cent in Biba. Future Group has been restructuring itself for the past two years to cut debt and align its businesses. The company sold its majority stake in Pantaloons format to Aditya Birla Nuvo, apart from divesting its non-core businesses like insurance. Last year, it also demerged its fashion businesses into a separate company, thereby creating verticals for facilitating FDI in multi-brand retail.

12

Vishal Retails Debt Restructuring: Hit hard by mounting debts on account of rapid expansion and increasing losses, Vishal Retail has decided to soon commence the process of corporate debt restructuring (CDR). The company has a debt of around Rs 730 crore and had decided in July to shut down around 10 of its outlets across the country and renegotiate part of its debts with lenders. When contacted a company official declined to comment. The retail chain's business has been under pressure for the last few months and for the first quarter ended June 30, 2009, it had reported a sharp decline in total income to Rs 265.37 crore, as against Rs 376.55 crore during the same period last year. It showed a net loss of Rs 90.66 crore during Q1 this fiscal as against Rs 14.01 crore. Vishal incurred losses of Rs115 crore for the last quarter of 2008-09, but managed to cut losses in the June quarter of 2009-10 to Rs90 crore. The firm, which runs around 170 discount supermarkets nationwide, is trying to sell off inventory of about Rs630 crore through heavy discounts.

13

Its plans to raise about Rs200 crore through a qualified institutional placement have remained a non-starter in a tough money market. The objective of the CDR framework is to ensure a timely and transparent mechanism for restructuring of the corporate debt of companies affected by internal or external factors, outside the purview of Board for Industrial & Financial Reconstruction, Debt Recovery Tribunal and other legal proceedings. State Bank of India, HSBC Ltd and HDFC Bank are among the lead bankers for the debt restructuring plan. ING Vysya Bank, UCO Bank and Bank of India are the other lenders to Vishal Retail.

14