The uncertainty surrounding the revival of grounded Kingfisher Airlines Ltd appears to have persuaded a few banks to reduce their stake in the carrier by selling the shares acquired through a loan conversion, at lower prices.
The move is aimed to limit losses as banks are struggling to recover money from the beleaguered airline. “We felt the share price will sink further and decided to retrieve whatever possible,” a senior executive with a state-run lender told Business Standard, requesting anonymity.
ICICI Bank Ltd, the largest private sector lender in the country, sold 9.6 million shares of Kingfisher during February-March 2012 when the stock price was between Rs 16-30.
Following the share sale, the bank’s stake in the company fell to 2.9 per cent in March 2012 from 4.56 per cent earlier. The stake came down further to 2.07 per cent at the end of September, as Kingfisher expanded its capital base.
“Banks, including ICICI Bank, had acquired equity stake in Kingfisher in financial year 2011 due to conversion of part of the loans into equity as part of debt restructuring. ICICI Bank sold a part of its shareholding in financial year 2012, and the impact of the sale was reflected in its accounts. The subsequent reduction in shareholding has primarily been due to expansion of the company’s equity base. According to accounting norms, the investment in the company is valued on a mark-to-market basis and the profit and loss impact thereof is not material in the context of the bank’s financials,” ICICI Bank’s spokesperson said in an emailed response.
Banks received these shares by converting some of their loans as part of a debt restructuring package, at a conversion price of Rs 64.48 per share.
Kingfisher’s finances have been under stress, with its losses widening to Rs 754 crore in the July-September quarter. The private carrier’s flying licence has been suspended and it has not been able to service Rs 7,500 crore of loans from a consortium of banks.
The share price touched its nadir declining to Rs 7.05 in August 2012. It recovered a tad in the following months but still lost 29 per cent during the last calendar year.
IDBI Bank sold 200,000 shares in July-September when the stock was in the range of Rs 7-16. The state-run lender had 2.13 per cent stake in the airline at the end of the second quarter. A couple of other banks, including Punjab National Bank, also pared their holding in Kingfisher during this period.
“One may blame banks for supporting Kingfisher, but banks cannot be blamed for determining the conversion price. It was decided as per the Sebi (Securities and Exchange Board of India) formula. Supporting Kingfisher was a business decision, which did not work out in the way we wanted. Hence, it was time to cut losses,” said another banker, also on condition of anonymity.
Industry analysts said that by holding on to the shares, banks are incurring mark-to-market losses in their investment portfolios. While these are notional losses, they will expand and hurt profitability if share price fell further. “Hence, some of the banks may have decided to sell the shares and book actual loss to remove further uncertainty and stress on their books,” said an analyst with a local brokerage, who also did not want to be named.