ICICI bank deplanes, sells Rs 450 crore Kingfisher Airlines loans to Srei Fund

KOLKATA: ICICI Bank has exited Kingfisher Airlines by selling the last of its nearly Rs 600-crore loans to a fund run by Srei Infrastructure Finance, ending speculation that it may have to incur losses on loans to the troubled aviation company.

The nation's second-largest lender sold Rs 430 crore worth of loans and also transferred collateral provided by the United Breweries Group, including the personal guarantee of Chairman Vijay Mallya and about 4% shares of United Spirits Ltd that are speculated to be in play. Diageo, the world's biggest drinks company, may be keen to buy a stake in United Spirits, people familiar with the matter had said.

While the transaction ends ICICI's financial relationship with the sinking airline, Srei believes the collateral and the prospective returns on these loans at about 15% make it an attractive buy.

"It is a good buy as it is a fully secured debt," said Sunil Kanoria, vice-chairman of Srei Infra Finance. "The fund saw an opportunity as the ICICI debt was appropriately collateralised and is expected to give higher returns, and thus, higher yield. It, therefore, made prudent business sense to buy it."

Collateral the main attraction

These loans were sold at face value by ICICI without any discount despite it being a stressed asset, said people familiar with the transaction.

Kingfisher Airlines has been struggling to stay afloat, with a Rs 7,500-crore debt burden. With the government dithering on allowing foreign direct investment in aviation companies, equity-raising plans have been hit.

Lenders who in the past had restructured loans are refusing to do so now without equity contribution from Mallya.

While Kanoria maintains that higher yield drove him to buy the loan, a person familiar with the transaction says the collateral, including some assets of the UB Group, was the main attraction given the uncertain prospect of Kingfisher Airlines repaying the loan. Hence, high yield does not matter much.

Patience of other lenders is also wearing thin, with Kingfisher Airlines' problems compounding in the form of a pilots' strike and cancellation of flights that have led to flight of customers to rival airlines.

"We also may have to do something drastic if no solution is found soon," said a banker at a nationalised bank who did not want to be identified. Bankers are meeting on Thursday to take a call on the airline's debt.