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Rediff News  All News  » Business » Mallya says no to loan on personal guarantee

Mallya says no to loan on personal guarantee

February 24, 2012 11:48 IST

UB Group Chairman Vijay Mallya has turned down suggestions from banks that he should give a personal guarantee as a precondition for additional funding to the cash-strapped Kingfisher Airlines.

The airline was in discussions with banks last week for additional funding though it was unable to service existing loans. While banks declined to sanction any further loans till the dues were repaid, some banks insisted on a personal guarantee. Mallya, however, rejected the banks' demand.

When Kingfisher's debt was restructured for the first time in December 2010, Mallya gave a personal guarantee along with a host of other guarantees, including hypothecation of the 'Kingfisher' brand, corporate guarantee of United Spirits, escrow of credit receivables, cash collections, pledged shares by promoters, etc. Kingfisher has debt of over Rs 7,000 crore (Rs 70 billion).

According to bankers, a personal guarantee is sought when a bank is not comfortable with the repayment capacity of the corporate entity. "A personal guarantee

is also sought to see how much the promoter is interested in running the company," said a banker with exposure to Kingfisher.

Despite repeated attempts, Mallya could not be reached for comments. One of his aides said he would call back, but no response came till the time of going to the press. About 10 banks have exposure to the beleaguered airline, which has taken a hit of Rs 2,000 crore already in terms of provisioning due to the conversion of loans into equity. Most of the lenders classified their loan, to Kingfisher as non-performing during the October-December quarter.

Bankers said they had asked the airline's chairman to repay fees of around Rs 50 crore (Rs 500 million) paid by Kingfisher for a personal guarantee.

Last week, the airline made a case for a loan of Rs 2,200 crore (Rs 22 billion) from banks to tide over the present cash crunch. Bankers said the immediate requirement for Kingfisher was around Rs 500 crore (Rs 5 billion), which could be used to service the interest to banks so the airline could come out of the sub-standard category. Bankers said such an activity would amount to 'evergreening' of the loan.

Manojit Saha in Mumbai