Though the banks are trying to process the personal guarantee collaterals, Kingfisher's present debt amounts to around Rs 13,000 crore which is much more than what it owes to the banks.
Vivek Gupta, Partner at BMR Advisors clearly considers the entire situation to be messy. According to him, there will certainly be a hierarchy of demands once claims are made. In that case, statutory dues including employee provident fund, insurance, service tax and income tax will have to be cleared before satisfying the demands of banks, he explained. Moreover, he believes, it will not be easy for banks to realise the securities or guarantees available with them.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Earlier today we had State Bank of India (SBI's) Deputy Managing Director telling us that they have collaterals in the form of pledge shares as well as personal and corporate guarantees. Will they really be able to realise all that or will employees and others have earlier claims or more clearer claims on the assets of Kingfisher?
A: This is clearly a messy situation. It is not a situation that Kingfisher Airlines lenders would have liked themselves to be in. In such a situation there is a hierarchy through which recoveries can happen. So in terms of hierarchy, I think the first charge always will go to statutory dues.
If there are any provident funds, if there are any employee insurances, if there are any taxes like service taxes, income taxes etc. which are unpaid, I think from a winding up perspective that will be the first demand to be satisfied. Post that the secured lenders, that is the banks will come in and their interest recoveries will also depend on the kind of contractual rights that they have in their documents.
I don't think it is as simple as to say that against USD 1.5 billion of debt you have a certain set of securities. There would be various classes, potentially of lenders amongst the USD 2.5 billion number that you talk about and apart from the complexity of hierarchy, the other complexity is realising all of these securities in the Indian context is also not the easiest thing.
So from a banking standpoint, I do think that this is a messy situation which will not only be impacted by hierarchy of demands and the number of people who have those demands, but also by the fact that you cannot realise the security or monetise the security very easily. Security will be a mix of shares, real estate, personal guarantees, non-disposal undertakings, the aircrafts themselves and so on and so forth.
Q: So logically, how much do you think the banks can actually realise if they had to liquidate the collateral because like you pointed out by invoking personal or even corporate guarantees, there may not be too much that banks can realise because according to some reports the airline has not even given too much in terms of corporate and personal guarantees as well?
A: I think it is really tough for anyone who does not have intimate knowledge of the contract to hazard a guess here in terms of what banks could or could not realise. That is why I also think the banks were waiting and clinging to the last hope.
Since October 2012 this airline has not been flying, but banks have not moved against them. There were talks, the government loosened up regulatory norms, there were talks of a foreign airline coming in and that also hasn't fructified. Now before March 31 I think the banks were forced to take action.
They perhaps were anticipating some sort of capital infusion by the promoters, from other group companies etc. and that also has not happened. So, I don't know. I can't hazard a guess.
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