Business - Kingfisher plans 25% stake sale

Mithun Roy & Boby Kurian

MUMBAI/ BANGALORE: Vijay Mallya's Kingfisher Airlines is holding exploratory talks with international carriers for diluting up to 25% stake. The
move comes as the Centre is reportedly planning a policy change to allow foreign airlines to invest in domestic carriers with a cap of just below 26%, sources said.

Kingfisher is believed to be discussing stake sale with three foreign airlines — British Airways, Singapore Airlines and Virgin — as a strategic investment is expected to fetch better valuation compared to the numbers indicated by PE investors.

Kingfisher Airlines chairman Vijay Mallya told ET : “I have received several expressions of interest from foreign airlines as the Kingfisher network is unparalleled. However, I cannot share details.” British Airways, Virgin Airlines and Singapore Airlines could not be contacted on the weekend, but it must be mentioned that interest from some of these airlines is not yet a formal one.


This is because there is no clarity on when the government may permit the foreign airlines to hold equity in their Indian peers although the Indian companies, including Mr Mallya, have been asking for the permission for quite some time.

The civil aviation ministry had met the airlines on October 30 to discuss key policy changes including allowing foreign airlines to pick up stake in domestic carriers. This meeting has triggered expectation that the government may allow the foreign carriers to buy equity in Indian companies. It must be mentioned that while foreign airlines are not allowed to pick up equity in aviation companies, other institutions and foreign investors are free to hold up to 49% stake.

Earlier , ET had reported that Kingfisher received a term-sheet from a global fund, but the deal has not progressed in recent weeks, as valuation has taken a knock in the wake of the market meltdown.

Sources said the foreign airlines were interested in a minority investment for now, which will lead to sharing of infrastructure and will help in better aggregation of passengers on international routes.

Kingfisher and Jet have been trying to raise $300-400 million for sometime now. Both have seen their equity raising plans shelved several times in the past 12 months, as they desist diluting stake at depressed valuations. It is believed that Mr Mallya is not keen on selling equity at a valuation lower than $1 billion.

However, this valuation seems to be a long hop considering the ruling market rate. The Kingfisher Airlines stock slipped by 2.94% to close at Rs 26.40 on BSE on Friday, putting the market capitalisation of the company at Rs 702 crore. At the current stock price, a 25% dilution may bring in Rs 175.5 crore to the struggling airline. The 52-week high of the stock was Rs 335.

Most Indian carriers are already sitting on significant debt and raising anymore may not be easy in the prevailing conditions. Indian aviation companies have been hit by the global financial meltdown, high oil prices and over capacity in many routes.

Due to the slowdown, the passenger load factor has also come down on an average 15%. The sector may suffer a combined loss of Rs 10,000 crore.