The flamboyant liquor baron, Vijay Mallya, once hailed as the King of Good Times and
Indian version of Richard Branson, is being chased by almost every institution in the country
the
banks, regulators and, finally, the judiciary for
the Rs 9,000 crores he owes to the
lenders. How did Mallya fall to his current plight, where he is personally held accountable for
the failure of the airline business Kingfisher Airlines and delayed repayment of loans? The
answer lies in a decision forced on him by lenders in 2010 to give a second lease of life to
the airline that was then on the brink of a collapse.
"Mallya had his back against the wall. Banks insisted him to offer personal guarantees for
any further lending,” said a retired banker, who was previously with State Bank of India
(SBI), on condition of anonymity.
"Otherwise, there was no reason why Mallya is personally held responsible for the
repayment of the loan (Rs 9,000 crore now including the accrued interest amount). There
are bigger stressed borrowers (companies) around,” the banker said, giving examples like
Bhushan Steel and Winsome Diamonds.
The Kingfisher Airline, grounded in 2012, never made profit in its eight years of operations.
When Mallya approached the group of lenders for further lending in 2010, there was serious
differences of opinion among the group of senior bankers in SBI, and other banks in the
consortium, on why should they lend to the airline again. But, the majority decision was to
take the big risk again and lend to Mallya.
"It was, in a way, throwing good money after bad (since the KFA exposure was already
stressed),” the banker quoted earlier said. "But, if we didn't do that at that point, the
exposure till then would have gone bad instantly. No one wanted that to happen. There was
no option before us,” said the official. But, everyone knew what was in the store, though no
one said anything in the discussion room. "The mood was partly that of helplessness and
partly optimism,” the banker said.
Bankers were optimistic because Mallya himself was hopeful of turning around the airline,
even though the entire aviation industry was groping in darkness. Ironically, however,
despite Mallya's optimism, everyone saw the writing on the wall.
Mounting losses
In March 2012, Kingsiher halted its international operations to Europe and Asian countries
and cut down local flights to 110125
a day with a fleet of 20 planes from 340 flights earlier to
save money. By October 2012, the bird flapped its wings for the last time. Since then, it
hasn't seen the skies.
Kingfisher, once the secondlargest
airline in India, had little chances of resuming its
operations since the necessary regulatory approvals were not in sight and its balance sheet
was bleeding. The company's losses had widened to Rs 2,142 crore for its fiscal fourth
quarter ending in March 2013, compared with a net loss of Rs 1,150 crores a year earlier.
The accumulated losses as of March 2013 stood at a whopping Rs 16,023 crore.
Its dues had mounted to over Rs 15,000 –Rs 16,000 crore to banks, airports and others and
its flying licences expired at the end of last year. The death bells were begining to ring. In his
desperation to revive the airline, Mallya twice submitted revival plans to the aviation
regulator, with parent UB Group committing initial funding, but with no luck. In its eightyear
life, the airline never made profit even once.
Mallya remained optimistic though not to lose the airline's licence. "We have not submitted
an ambitious plan. We have submitted a holding plan," Mallya told reporters, while the
government wasn't convinced. "The problem is in the last two to three months, he's given so
many plans and he's not adhered to any of them," the then Aviation Minister Ajit Singh told
reporters in New Delhi.
Panic grips banks
Panic was beginning to set in in the banking industry, especially staterun
banks, which were
the majority in the banking consortium. After all, banks had to answer a lot to shareholders
not just for further lending to Mallya in 2010, but for offering generous loan recast facilities
and converting the debt of Kingfisher to equity at a huge premium.
Bank loan exposure to Kingfisher AirlinesIn early 2011, the bank consortium including SBI
had converted debt amounting to Rs 1,400 crore into equity at a 60 percent premium to the
prevailing market price. Going by the stock exchange data, on March 31, there was
preferential allotment to SBI and ICICI Bank due for conversion of compulsorily convertible
preference shares into equity shares at a price of Rs 64.48 each. Remember, on that day,
KFA shares closed at Rs 39.90 on the BSE.
"Within a few months, the share value had eroded so much that banks were put in a difficult
position,” said the banker quoted earlier. Kingfisher last traded at Rs 1.36 on the BSE on 22
June 2015. The entire loan restructuring exercise to Kingfisher was done without any special
dispensation from the RBI, which means that banks had to make heavy provisioning on their
books, hoping that the airline will revive sooner or later and pay back the money. That never
happened.
Finally, Kingfisher, was declared an NPA by most banks, including SBI, towards the end of
2011 and beginning of 2012. The majority burden of Kingfisher loans was on
governmentowned
banks. The smartest in the lot was ICICI Bank, which managed to sell its
entire Rs 430 crore Kingfisher loan exposure to a debt fund managed by the Kolkatabased
Srei Infrastructure Finance Ltd in mid2012.
The sarkari banks were the real bakaras in the
entire story.
So what lies ahead
Banks' chances of getting their money back from Mallya are very less since Kingfisher hardly
has any assets left for banks. Even if banks go ahead and sell Kingfisher assets such as the
Kingfisher House in Mumbai, it will fetch only a fraction of what is at stake. The only hope for
banks is if Mallya himself have a change of mind and decides to pay back banks from his
personal wealth (Mallya has shares worth Rs7000 crore in various companies and lot more
in fixed assets).
"But, all that will happen if he returns to the country and say he will pay back,” the banker
said, adding that bankers are more irked by Mallya flaunting his wealth publicly even now
when thousands of crores are at stake. According to reports Mallya already received $40
million of his severance pay from Diageo before he flew to UK. Can the final battle between
banks, led by SBI, and Mallya in Supreme Court and Bangalore DRT result in lenders getting
their money back. Chances are less.
The Supreme Court Thursday directed founderowner
of Kingfisher Airlines, Vijay Mallya, to
truthfully declare all assets owned by him and his immediate family after SBIled
consortium
of public sector banks (PSBs) trashed his Rs 4,000crore
loan repayment proposal.
According to the banks, Mallya owes over Rs 9,000 crore to PSBs.
A bench of Justices Kurian Joseph and Rohinton F Nariman, prima facie, also agreed with
banks which contended that Mallya’s presence is “absolutely necessary” for a meaningful
negotiation on loan repayment schedule. The bench asked Mallya’s counsel to get
instructions from the elusive liquor baron when he will be back to India for an “effective
dialogue” with the consortium of 17 lending banks to clear all dues.
The banks also sought the issue of an arrest warrant against Mallya and a security deposit
to ensure his presence at the debt recovery tribunal proceedings in Bengaluru.
When asked about Mallya's whereabouts, Rohtagi said that the Central Bureau of
Information informed him that the Rajya Sabha Member of Parliament had left Indian shores
a full six days before the banks approached the apex court.
But how did a business tycoon who seemed to be successful at one point end up being a
“wilful defaulter” on the run?
Mallya’s story was never of rags to riches – and it’s unlikely to turn into one of riches to rags.
The flamboyant billionaire inherited UB Spirits from his father and turned it around into
India’s biggest spirits maker.
The company, known for Kingfisher beer, among the highest selling brands across the world,
is, however, no longer his – and his fortunes are all but gone.
He was hardly as successful in any of his other umpteen businesses, including a full service
airline that’s now been grounded for four years and has dues of more than Rs 9,000 crore to
pay to various banks.
Kingfisher Airlines was grounded in 2012 after failure to pay salaries to employees and a
burgeoning debt burden which stopped the beleaguered airline to continue operating. The
airline is now also being investigated for suspected diversion of funds and financial
irregularities.
Mallya faces an enquiry for money laundering in a case registered by the Enforcement
Directorate on the basis of a First Information Report filed by the CBI in relation to the
Kingfisher Airline’s loans, which were allegedly granted in violation of norms pertaining to
credit limits.
Once known for his steamy calendar shoots, Mallya admitted on Sunday that he had
become the “poster boy” of bank defaults for his failure to pay his dues on the same loan.
In a separate development, the Debt Recovery Tribunal on Monday passed an order barring
Mallya from accessing Rs 515 crore severance package that he received from the
multinational spirits company Diageo in return for selling his UB Spirits.
How are Indian banks caught in this mess? Why didn’t they exercise restraint in lending him
such a big amount?
The nation’s biggest public sector bank, the State Bank of India, is the leader of the
consortium of 17 banks to whom Mallya owes more than Rs 9,000 crore.
Justice Kurian Joseph asked the most obvious question on Wednesday: "Was there no
secured assets on these loans?”
Rohatgi replied that when the loans were granted, Kingfisher Airlines was a brand at its
peak, with assets worth some thousand crores, and then “it crashed”.
“Whad some assets [as security] for the loans advanced,” he said.
Rohatgi said the proceedings have been pending since 2013. There have been at least 500
hearings in the case before tribunals in Goa and Bengaluru.
In 2010, Mallya surrendered goodwill and trademarks of the Kingfisher brand to the bank as
security in the event of nonpayment
of dues. At the time, the brand value was about Rs
3,500 crore which has now reportedly come down to Rs 6 crore and banks are struggling to
find even a single buyer for trademark.
Mallya might be the poster boy of bank defaults now but he’s not the only one. Loans worth
lakhs of crore rupees provided by Indian public sector banks are now classified as
nonperforming
assets or NPAs and nobody knows for sure how much money will be
recovered.
According to CBI, Mallya managed to get a Rs 900crore
loan from staterun
bank Industrial
Development Bank of India, which ignored warnings from some of its officers to hastily and
unusually clear the massive amount in just a month in 2009. Kingfisher Airlines was already
in acute financial distress by then.
What is Mallya’s response to all this?
Whataboutery and denial.
On Sunday, Mallya wrote an open letter defending himself.
"All enquiries conducted have failed to find evidence of misappropriation of funds by
Kingfisher Airlines or myself," Mallya said. “Despite pledging blue chip securities and
depositing significant amounts in court, a successful disinformation campaign has ensured
my becoming the poster boy of all bank NPAs.”
Mallya claimed that he was willing to cooperate in the probe in his financials even as he
worked out a onetime
deal with the banks.
“Personally, I am not a borrower or a judgement defaulter,” Mallya said. He added that SBI
has been fully aware of Kingfisher’s financial position for the last four years, indicating that
the bank could not pretend to have been caught unawares now that the loans are proving to
be irrecoverable.
Besides, he added that he was not the only one who owed money to banks.
“In fact, banks have NPAs of Rs 11 trillion and have borrowers who owe much more than the
amount allegedly owed by Kingfisher Airlines to the banks – a fact never alluded to or widely
reported by the media as in my case,” Mallya wrote.
He added: “None of these large borrowers (whose debt is significantly more than the KFA
debt) have been declared wilful defaulters, but unfortunately, UB Holdings and I have been
declared wilful defaulters by certain banks on technical grounds. I have legally challenged
these declarations.”
Does this all mean that Mallya is no longer the prodigal billionaire that he once was?
Unlikely. Mallya has been more in the news for his lavish lifestyle than his business acumen
and that’s something which almost everyone is expecting to continue – unless he ends up in
jail. There’s an unmistakable pattern of ostentatious spending and Mallya’s own worsening
financial wealth which many claim are interlinked.
In January 2016, when all this was still unfolding, Mallya spent a whopping Rs 9.5 crore to
get Australian allrounder
Shane Watson to play for his Royal Challengers Bangalore Indian
Premier League cricket team this season. He had bought this franchise back in 2008 for
about US $111.6 million.
Mallya owns a 41.5% stake in the Force F1 team and allegedly, Kingfisher’s money was
used to pay the F1 team in 2009 even though the airline’s losses were mounting.
What this means is that Mallya has never really cut back on extravagance, no matter what
his financial position – and is unlikely to do so now.
W
Nobody knows for sure.
On Wednesday, Rohtagi told the court that Mallya is likely to be in London. “He has
tremendous assets there," he said. "We know he would be there... most likely.”
The Hindu quoted Rohtagi as saying that some information about Mallya’s assets was
gathered from social media sites, and this showed his properties were mostly abroad. “Only
a fraction is in India... maybe onefifth.”
“We are not after anybody’s blood. We want to sit across him and reach a settlement on
getting back our money,” Rohatgi said. “The court should ask him to appear here and bring
his passport. We also want a disclosure of his assets.”
“We’ll issue notice and then see,” the court said, while giving Mallya two weeks to respond.
Mallya has been issued notice through his through his company United Breweries (Holdings)
Limited, his lawyers, his official Rajya Sabha email address and the Indian High Commission
in London
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