Working hard to lower its debt and interest costs, Kingfisher Airlines got guarantees worth over Rs 6,100 crore (Rs 61 billion) from Chairman and key promoter Vijay Mallya last fiscal toward loan and other liabilities.
For providing the additional level of collateral for its funding needs, the company paid a little over Rs 50 crore (Rs 500 million) to Mallya as 'guarantee and security commission' during the year ended March 31, 2011, Kingfisher has told its shareholders.
Mallya had also furnished guarantees totalling Rs 2,799.56 crore (Rs 27.99 billion) in the previous fiscal (2009-10) on behalf of the company for loans and other liabilities, but did not get any commission that year.
The airline disclosed the guarantees worth Rs 6,175.63 crore (Rs 61.75 billion) provided by Mallya and the commission totalling Rs 50.87 crore (Rs 508.7 million) paid to him in its Annual Report for the year 2010-11, which was made available to shareholders ahead of its annual general meeting on Wednesday in Bengaluru.
The company did not reply to detailed queries regarding the need for collateral from Mallya and the exact details of the loans and other liabilities for which he had to furnish his personal guarantee.
However, Mallya told shareholders during his address at the AGM that he 'personally stepped in to provide a third level of comfort to the lenders who have been extremely supportive of Kingfisher.'
Kingfisher, which claims to be the country's single largest airline with a market share of about 20 per cent, is taking various steps to improve its operating performance and as part of these efforts, has decided to phase out its low-cost service, Kingfisher Red, in about four months.
Mallya said the company has implemented a debt-recast programme to lower its debt liabilities and Kingfisher was continuing to work with the consortium of banks with a view to further reduce interest costs.
In an investor presentation in June this year, the company said that its total debt before the recast stood at Rs 7,651.12 crore (Rs 76.51 billion) and came down to Rs 6,007.30 crore (Rs 60.07 billion) after the recast.
"The banks have not only given relief to Kingfisher in the form of a moratorium on repayment, extended tenor of loans and reduced interest rates but also converted 30 per cent of their outstanding
loans into preference and equity capital," Mallya said.
"By the same measure, I, too, have given my personal comfort to the lenders over-and-above the securities provided by the company and the additional collateral of UBHL guarantees," he added.
Besides Mallya's guarantees, Kingfisher Airlines also got guarantees worth Rs 16,853 crore (Rs 168.53 billion) during 2010-11 from its holding company, United Breweries (Holdings) Ltd, which was paid a commission of about Rs 58 crore (Rs 580 million).
UBHL had also got a commission worth Rs 49.5 crore (Rs 495 million) in the previous fiscal, 2009-10, during which it had given guarantees of about Rs 6,985.5 crore (Rs 69.85 billion).
Mallya said the promoters have consistently supported the airline through direct investment, advances from the holding company, guarantees from the holding company and also by securing third party funds to meet exigencies in Kingfisher.
He said that UBHL has provided Kingfisher with corporate guarantees totalling Rs 9,135 crore (Rs 91.35 billion) and each of these primary obligations was supported, in the first instance, by Kingfisher's assets and cash flows.
The UBHL guarantees are by way of additional collateral to further strengthen the promoter's commitments, he added.
At the end of the latest financial year, 2010-11, the airline's total secured loans stood at about Rs 5,184.5 crore (Rs 51.84 billion), up from Rs 4,842.4 crore (Rs 48.42 billion) a year ago.
Its unsecured loans were, however, lower at Rs 1,872.55 crore (Rs 18.72 billion) as of March 31, 2011, down from Rs 3,080.17 crore (Rs 30.8 billion) a year ago.
Kingfisher paid a total of about Rs 1,119 crore (Rs 11.19 billion) as interest charges and Rs 191.5 crore (Rs 1.91 billion) as bank charges and guarantee commissions during 2010-11, up from Rs 1,007.6 crore (Rs 10.07 billion) and Rs 88.8 crore (Rs 888 million), respectively, in the previous year.
Its total revenue rose by 23 per cent to Rs 6,496 crore (Rs 64.96 billion) in 2010-11, while it narrowed its net loss to Rs 1,027 crore (Rs 10.27 billion) from Rs 1,647 crore (Rs 16.47 billion) in the previous year 2009-10.
In the latest quarter ended June 30, it posted a net loss of Rs 263.5 crore (Rs 2.63 billion), while its revenue rose by 15 per cent to Rs 1,911 crore (Rs 19.11 billion).
Shares of Kingfisher Airlines were down about 8 per cent at Rs 22.85 apiece in late afternoon trade on the BSE on Thursday.