21/03/2011 05:29

Equity Theme:

Market players will play long.  Target is huge for KFA.  How UB Holdings will fare its journey to be watched.
Lenders, UB to Get KF Shares at big Premium - Source ET

Both lenders and promoters will pick up equity in debt-laden Kingfisher Airlines at a substantial 64% premium to its current market price by March 31 if the company keeps its commitment on timelines earlier agreed upon.

UB Group President & CFO Ravi Nedungadi said the company was yet to fix a date for conversion of loans into equity. “The board will decide the date. The share conversion price will be based on a Sebi formula,” he said.

Analysts tracking the airline said as per regulations, the airline could allot equity at 64.70 per share, which is at a massive premium to its current market price of 39.50. This price takes into account the weekly average price between September 2010 and February, which is 30 days prior to the relevant conversion date agreed upon.

The recent crash in Kingfisher stock would result in a higher dilution of equity to its lenders, effectively reducing the promoters’ ownership holding in the airline, an analyst noted. A JP Morgan report last week said it had earlier expected price conversion to happen at Rs 70 per share.

If this plan goes ahead, all the 18 lenders could end up owning over 12 crore shares of the airline, which could work out to around 19% of the expanded equity base, without considering further equity dilution via the proposed GDR issue. to Report Losses

The only catch — all these banks would have to report mark-to-market losses since the stock will be trading at a discount to its acquisition price. For instance, if a bank has . 500-crore debt being converted into equity, it would get 7.7 crore shares, and if the share price of the stock by June quarter still hovers around . 40 per share, it would have to report . 190 crore mark-to-market losses, based on the yawning gap between the acquisition price and market price. A bank consortium member said their exposure will be converted into equity on March 31 and it would make provisions for the same in its investment portfolio. The bank official said the company has not yet indicated any conversion price as of now.

UB Holdings could also fetch another 11 crore shares as part of the debt conversion. A UB official who did not want to be named also said the company might have to provision for mark-tomarket losses, which could have an overall impact on the holding company's financials.

At the end of the third quarter, 66.27% shares in Kingfisher Airlines were held by the promoter group (with UB holdings having 30.57% stake). Kingfisher plans to reduce its debt to . 6,000 crore from . 7,650 crore after the restructuring exercise. As part of the overall restructuring plan, UB Holdings is also working hard on the GDR plans and a “large size” rights issue soon after the GDR issue is closed, the UB official said. In terms of the pricing for the GDR issue, he said this could be in line with the debt-conversion price.
A UB watcher said Kingfisher Airline CEO Sanjay Aggarwal, credited for Spice-Jet’s revival following investor Wilber Ross’ entry, is rumoured to be working on similar lines for Kingfisher Airlines as well.

He said the airline could look to place equity with a financial investor like Ross through GDR and later place that equity with a potential strategic investor when FDI rules are relaxed.

The UB official, however, denied any such plans at this stage.