Kingfisher Seeks Funds from SC Lowy

It’s no secret that Kingfisher Airlines has been struggling to stay afloat, and now it’s been revealed that the carrier is in talks with SC Lowy Financial, the distressed debt firm in Hong Kong, about a possible investment. This signals that the airline may be exhausting its more attractive traditional options for funding. The company has failed in its long-term effort to bring in new equity.

Kingfisher Airlines confirmed on Thursday that they were in talks with SC Lowy and other firms. A spokesman wouldn’t say if the any potential injection would be in the form of equity or debt. However, it has been reported that the Hong Kong-based company may invest around $280 million and that an agreement could be signed by the end of the month.

The airline’s banks have been snagged by a quarter of its shares after a debt recast. State Bank of India, the lead lender, won’t lend more without an equity injection. Indian lenders are typically reluctant about selling or writing off loans. They prefer to extend the duration of the loan or accept lower interest payments.

State Bank of India chairman Pratip Chaudhuri told journalists on Thursday that airlines in general have to have equity. Interest free capital is welcome from whoever brings capital or equity to the company. Another loan isn’t going to be considered, but they are working with the airline because its account is in default and they want to cure that. State Bank of India still has faith in Kingfisher, as it should be able to overcome its troubles with a good business model and more favourable trading conditions.

Meanwhile, 38 plane orders from Kingfisher were cancelled by Turboprop maker ATR, a joint venture between Finmeccanica and EADS. This was because the carrier hadn’t paid for the aircraft, which were part of a bigger order it made about six years ago.

Kingfisher chairman Vijay Mallya told reporters in November that the airline, which had been the second biggest carrier in the country until last year but has never turned a profit, is close to securing an equity injection of $250 million. However, there has been no forthcoming deal. An India-based aviation analyst tells journalists that any investment for Kingfisher Airlines is more likely to be equity since the carrier doesn’t have the cash-flow for additional debt. The airline doesn’t have any power to bargain, and the analyst is sure they are accepting whatever valuation they can get.

However, another option could be viable for Kingfisher Airlines if its available soon. Earlier last week, India’s Aviation Ministry said that it will recommend that foreign airlines be allowed to invest in Indian airlines by up to 49%. This move would help the nation’s industry, which is reeling from around $20 billion in debt, access fresh funding.