Kingfisher seeks to raise USD350m in funding and cut debt burden

Kingfisher Airlines announced plans to raise more than USD350 million in funding, through a combination of global depository receipts and a local equity offering. The carrier plans to raise USD250 million through the sale of GDRs in international markets and USD106 million through a domestic offering, subject to necessary regulatory approvals.

The GDR sale and domestic offering are expected to be completed in the next three to four months.

On 31-Aug-2010, Kingfisher’s board approved a plan to increase the carrier’s authorised Equity Share Capital from USD193.5 million to USD354.5 million, and its authorised Preference Share Capital from USD21.5 million to USD558 million, an increase of approximately 2600%.

At the same time, United Breweries Holdings, the parent of the carrier, also announced its intention to convert USD140 million in loans to Kingfisher into Preference Share Capital. Kingfisher Airlines reportedly has a USD1.3 billion debt burden, the majority of which is long-term debt. Kingfisher Airlines has recently requested lenders to extend the repayment period and lower interest rates

Another major Indian carrier, Jet Airways, recently announced plans to raise USD400 million in funds through an institutional placement, as a measure to offset its debts. The carrier also reportedly plans to sell the rights to a Mumbai property for USD120 million, in a cash and debt swap arrangement. Jet Airways borrowings are reportedly as high as USD3.1 billion.

Air India is set to receive a USD257 million equity infusion from the government this fiscal year. A decision on the equity boost was expected yesterday. The carrier is also seeking to refinance USD1.2 billion of debt used for the purchase of Airbus aircraft, and is in talks with the Indian Reserve Bank over soft loans. 

In mid-Aug-2010, the Indian Civil Aviation Secretary raised concerns with the Finance Ministry over the level of debt held by Indian carriers and related financial stress. Airlines in the country are estimated to have between USD10.5 billion and USD12.9 billion in debts, approximately two-thirds of which is attributable to the state-owned Air India. Carriers will also need to raise USD10 billion in financing over the next three years to fund aircraft deliveries.

Indian Banks have expressed concerns that the three largest carriers in the country will be unable to repay their debts while they suffer continued losses. Indian carriers reported combined losses of USD2 billion in 2009, and a similar level of red ink in 2008.

Indian carriers are waiting guidelines from the Reserve Bank on a debt restructuring package for the aviation sector. Airline shares had traded strongly on reports that the Reserve Bank has agreed to ease rules regarding loan restructuring for airlines.

In trading yesterday, Kingfisher Airlines shares dropped 0.8%, while Jet Airways shares were down 5.3%. SpiceJet shares dropped 1.5%.

Asia Pacific selected airlines daily share price movements (% change): 31-Aug-2010