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September 24, 2017

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What's at stake for liquor baron Vijay Mallya if Kingfisher fails?

MUMBAI -- If Indian liquor baron Vijay Mallya's Kingfisher Airlines fails, lenders owed US$1.4 billion may end up with a small stake in his spirits business, a modest office building, the carrier's brand, and not a lot else.

A US$16 million beachfront villa in Goa, where Mallya throws parties and shoots his Kingfisher swimsuit calendar, is owned by his UB Holdings Ltd. (UBHL) and pledged as collateral to State Bank of India, Kingfisher's lead bank. But Mallya's UB Group wants to swap the villa for another asset and says it has the right to do so. SBI is resisting.

Through interviews with bankers, lawyers and others in the financial industry, as well as information provided by the company and publicly available data, Reuters has pieced together what parts of Mallya's empire are at risk if Kingfisher falls.

The airline was launched seven years ago by Mallya, who is known as the "King of Good Times" for his flamboyant lifestyle and often referred to as India's Richard Branson.

While Kingfisher has never made a profit, it grew quickly to become India's No. 2 airline by domestic market share. It has since been knocked back to sixth, crippled by high debt and fierce competition.

Banks have guarantees of more than US$1.2 billion from Mallya and his holding company, but collecting on them could prove difficult, and most of Mallya's lenders, mainly state banks, would pursue that only as a last resort, people familiar with the matter said.

No shares or other assets were directly pledged to banks against specific loans, according to Kingfisher.

"There is no security to fall back upon," said Sharad Bhatia, CEO of Phoenix Asset Reconstruction Co, a distressed debt investor backed by Kotak Mahindra Bank that does not have exposure to Kingfisher but is familiar with the matter.

"Ultimately, banks will have to take a haircut," he said.

After canceling thousands of flights late last year, cash-strapped Kingfisher has grounded most of its fleet and is desperately awaiting a rule change to allow investments by foreign airlines, although none has publicly expressed interest.

Mallya's UB Group includes Kingfisher, United Breweries, United Spirits Ltd. and UB Holdings.

Kingfisher's woes have prompted speculation that British rival Diageo will make a play for United Spirits while Heineken goes after United Breweries.

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