Kingfisher’s financial needs

What Kingfisher needs desperately is additional working capital or short-term loans to tide over working capital needs. It also wants banks to substitute high-cost rupee borrowings with lower cost foreign currency debt.

It is also looking for the release of cash deposits held with lessors against maintenance reserves for which bank guarantees are being sought.

It also wants shareholders, including banks, to participate in the Rs2,000 crore rights issue which is intended to raise capital.

The problem with the rights issue is that bankers are wary of subscribing to it as they have already taken a huge hit on conversion of loans into equity shares earlier. When lenders, converted their debt into equity on 31 March this year, they agreed on a conversion price of Rs64.48 each, which was 60% higher than the prevailing market price of around Rs40.

The share is now trading nearly 70% lower.

It is also being given to understand that Kingfisher is yet to fulfil certain conditions of the previous debt restructuring exercise, which included assignment or hypothecation of the Kingfisher brand along with a host of other securities that were created, including personal and corporate guarantees.

The assignment of brand is yet to take place without which transfer of ownership of the brand to the lenders cannot take place.

Market experts said since the Kingfisher brand belongs to the UB group and the airline company, it will be difficult for Mallya to sell the entire company in case such a need arises.