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Friday, February 15, 2013

United Breweries Holdings Ltd: Should We Sell?
CMP: Rs.63.45
Continuous selling is being seen in the stock of United Breweries Holdings Ltd (Locked in the LC) and Kingfisher Airlines Ltd (CMP: Rs.9.56, locked in the LC), post, the media reports regarding recovery of loans given to Kingfisher Airlines Ltd by the consortium of banks led by SBI. Now let us analyse a bit of the situation. 
(i) Despite Kingfisher Airlines being neck-deep in debt, Vijay Mallya's Group took on the State Bank of India (SBI)-led consortium of banks on Thursday contesting their claim that the brand Kingfisher had been hypothecated to them. The company issued a statement saying, "United Breweries Limited (UBL) is the owner of brand Kingfisher, registered under the respective trademark classes pertaining to alcoholic beverages. The brand Kingfisher has not been hypothecated or pledged by the company to any lender to secure its loans." This is positive for the whole U B Group. 
(ii) "The Indian banking system is preparing to write off possibly the biggest-ever single loan account in its history, as lenders left with shallow collateral provided by Kingfisher Airlines," ET reported, some days back. Now this though might affect the bottomlines of banks, but will be positive for Kingfisher Airlines Ltd and U B Holdings Ltd. 
(iii) The lenders are hoping to recover up to Rs.1,000 crore of their dues by monetizing the securities in the March quarter itself, according to an SBI official. According to him, the consortium of 17 banks has an outstanding of more than Rs.7,000 crore owed by the carrier but has shares of listed entities like United Spirits as collateral which should fetch Rs.500 crore (residual rights over securities held by SREI Infra). But then their claim that "the brand Kingfisher" has also been mortgaged as a security, has been ALREADY been contested by the U B Group, as is mentioned earlier. In other words, the UBL has already issued the statement contradicting the claim, which is bound to set stage for fireworks ahead as analysts expect Mallya's companies to take legal recourse on the issue, which could delay the collection of money by the banks. Hence, the total recovery amount as of now stands only at meager Rs.500 Cr and not Rs.1000 Cr. It helps the U B Holdings Ltd. On the other hand it does not help the Banks, so why would they (the Banks) go for the invocation of  Sarfaesi Act?
(iv) According to the consortium of Banks, they have a residual right over securities held by SREI Infrastructure Finance, which comes to Rs.500 crore. SREI bought this from ICICI Bank in April last year. One of the SBI official said, "These are low-hanging fruits which should give us Rs.1,000 crore (but only Rs.500 Cr is coming from here). Balance is corporate guarantees, personal guarantees and properties, which ads to Rs.6,500 crore". Now we have feeble idea as what is the nature of the other collateral given--so how can we take a call on the share of U B Holdings Ltd, which has already become half from the recent high of Rs.140 plus (made in October, 2012) to the current price of Rs.63.45. When almost half the value has been eroded, is there any justification for further selling of the shares?
(v) According to a report published in Economic Times today (Did banks ignore early warning signs on Kingfisher Airlines? 15th Feb, 2013). 
  • The total debt on Kingfisher: Rs 7,723 crore
  • KFA losses: Rs.1,090 crore
  • Collateral on bank books: Rs 5,237 crore
Which means the banks are losing major money in this deal. Isn't it? So, in such a situation, why should banks go for forced recovery of the dues of KFA Ltd, rather than find an alternative route or something like CDR Package, where the losses on the part of the bank might be less? Does it not look more probable and also more appropriate? 
(vi) ICICI Bank sold the entire Rs.430 Cr loan portfolio after KFA flight cuts and loan defaults but before licence cancellation. The portfolio was bought by SREI Venture Capital, an arm of SREI Infrastructure Finance, along with collateral, including shares of UB group's liquor company. But the history says, in these kinds of complex cases, the process of recovery of debt is long drawn and there is no guarantee that, the things would be settled in favour of the banks (Mardia Chemicals). Hence, the same question arises, why would bank go for these trouble when a revival plan is much easier, like it has been done in case of Suzlon Energy Ltd or Jai Balaji Industries Ltd or many such companies who are knee deep in debts? 
(vii) Lastly if the Kingfisher Airlines Ltd is surely to be grounded, then why are the employees, not in arms against the management of the U B Group? Infact it seems they are simply sitting idle, waiting for the order of their boss, Dr.Vijay Mallya. We should understand that apart from being a billionaire (for him Rs.7000 Cr is nothing), Dr.Mallya is also an MP (Politician) and  hence he has tremendous clouts. We can compare this case with the case of former President of India, Ms.Pratibha Patil and his involvement in Loan-fiasco. CLICK HERE.
The media report therefore, looks HOAX and is aimed at pulling the price of the stock of both KFA Ltd and U B Holdings Ltd, so that hefty gains can be made, post announcement of revival package.