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Private Equity | 27 June 2009

Mallya Taps Abu Dhabi Royal For Kingfisher Funds

by Rupal Patel
Mallya Taps Abu Dhabi Royal For Kingfisher Funds
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Vijay Mallya has reached out to Abu Dhabi's Al-Nahyan royal family for a possible investment in the debt-laden Kingfisher Airlines.

Mr Mallya is personally leading the talks with the family, which controls a number of sovereign funds with an estimated value of more than $500 billion.

Kingfisher Airlines has notched up losses of over Rs 1,000 crore thanks to sluggish demand, high jet fuel costs and a debt load of Rs 8,000 crore. It badly needs equity of at least $400 million to meet operational costs and pay down some of its debt.

People close to the development said discussions are at a very preliminary stage and the board of Kingfisher Airlines is not yet involved. Details such as the amount of stake and the price have not yet been broached, they added. UB group will retain management control with at least 26% stake, going forward.

Mr Mallya has raised significant debt in the four-year-old airline, often extending personal guarantees, but raising further debt may not be easy unless more equity is added.

The current promoter holding in Kingfisher Airlines stands at 66%, giving Mr Mallya enough room to bring in new investors.

Kingfisher has been looking to raise equity for a long time but a combination of bad market and high price expectations prevented the deal from happening.

TPG Capital and Indigo Partners are among the funds that the airline was talking to. The company is also banking on the government opening up the aviation sector to foreign airlines.

Current government rules only permit foreign financial investors to invest in airlines; foreign airlines such as British Airways are not allowed to hold stakes. Mr Mallya has been openly lobbying with the government to permit entry of foreign airlines. So far, the government has not indicated its support.

What could perhaps turn the tide in Mr Mallya’s favour this time around is the ties he has built in the Middle East and especially Abu Dhabi over the past 25 years.

Indian aviation companies have suffered in the past one year due to slumping demand and inability to access funds easily. Soaring crude oil prices increased their costs and they were forced to respond with fare hikes. This crimped demand.

There are no accurate estimates of the size of assets that the Abu Dhabi funds manage globally. One of Abu Dhabi’s leading funds, ADIA, is believed to be managing about $875 billion. The publicity-shy Abu Dhabi funds took Wall Street by storm when it acquired a small stake in Citigroup for $7.5 billion in 2007.

The Al-Nahyan family, through its various funds, especially Mubadala Development Company, has forged significant partnerships with the parent of EADS, for whom Kingfisher is a key customer in this part of the world.

There are several Abu Dhabi government investment funds each having their own management teams and specific mandates. There are several Abu Dhabi government investment funds each having their own management teams and specific mandates.

Besides, the royals invest private wealth of their members independently as well. Some of the Abu Dhabi government funds include Abu Dhabi Investment Authority, Mubadala Development Company, Abu Dhabi Investment Council, Invest AD, IPIC and Aabar.

Source : ET


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