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Tuesday, 15 November 2011 03:17
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50 ways to re-work your loans

From ‘national interest’ to ‘level playing field’, there are many lines Mallya can use to get a bailout – but leave the Bentley at home!


: I don’t know what did it for you, or for the countless worthies who’ve slammed any possible move to bail out Vijay Mallya’s Kingfisher Airlines, but for me it was the F1, the pictures of Mallya, Senior and Junior, strutting around with the very very sexy Deepika Padukone—if a guy can own an F1 team, surely he can pay his oil bills on time, and if he can’t, why didn’t he sell off the airline instead of asking banks for a bailout for the second time this year? So here’s a word of advice: while negotiating with the bankers for a rollover, leave the Bentley at home. It’s not for nothing that all savvy politicians still prefer to use the old Ambassador!

But what’s done is done and, in a market like this, it’s not even certain if Mallya would get a good price for his yacht or any of the fancy homes—after all, if the buyer’s also looking for a bank rollover, it wouldn’t look too good would it? So what Mallya really needs is a good spinmeister since there are countless wonderful lines waiting to be used on bankers who, let’s face it, are quite keen to work on a bailout package—why else would they convert R750 crore of his debt into equity at a premium of 35% in April and not even insist on a change in management even though their equity share is now 24%?

Top on the list of useful lines that even the political class will start spouting once Mallya shows them the way is the ‘level playing field’ line. There is the ‘national interest’ one that Mallya has used—“Kingfisher is, at the end of the day, an Indian airline and so the government has to take care of it” … in other words, should a leading airline go bust, especially in an environment like this, it will reflect very poorly on the country and drive away investors. This is a powerful argument and the Prime Minister was mouthing a version of this the other day, but ‘level playing field’ has a better ring to it.

For one, it is economic in nature. After all, if Air India is to get R40,000 crore or thereabouts of government assistance, doesn’t this give it a huge advantage over the competition? Linked to this is the consumer angle—look at how airline fares have skyrocketed after Kingfisher withdrew a third of its flights, imagine what would happen once all the flights are stopped. As the fares rise, the aam aadmi’s dream of flying will go for a toss—surely that has to count for something? Nitpickers will argue this isn’t quite true since, were Kingfisher to close down, its planes will be bought over by rivals and its airport slots will be allotted to them. This may be true, but remember this is a line that has worked, and worked wonderfully in the past.

Just some weeks ago, when the issue of how a bailout for Air India was anti-competitive came up in a panel discussion at CII, the ex-chief of the Competition Commission of India argued that (this is a broad summary, the argument was a bit more nuanced) if a bailout kept Air India in business, this was the best antidote to a possible cartelisation by private airlines. An extension of the argument: were Kingfisher to fold up, this would increase the chances of cartelisation in the sector. This may sound trite given the number of airlines there are in the market today, but you can’t be too careful. There were 7-8 telecom firms in the mobile business when A Raja gave out new licences to, he said, break the cartel between them—a decision that even the current minister has endorsed, even though he didn’t agree with the fiddle that Raja did in terms of deciding to move a few favourites up the line.

There are countless such examples of consumer interest being used to prop up companies—in the late-1990s, when Koshika Telecom defaulted on its licence fee dues, the government argued the licence could not be cancelled since this would leave its subscribers high and dry; in 2003, when the TDSAT verdict went against Reliance Infocomm, the government argued the same consumer interest to argue that it needed to come up with a ‘solution’.

It’s called facts-on-the-ground—spend enough money on an illegal building, for instance, and then say the hundreds who’ve invested in it will be penalised for no fault of theirs.

Linked to this is the issue of banks. We’ve seen how, in Mallya’s case, the banks have more invested in the company than the promoters have, once you include the debt. If the airline is to be closed down, the banks balance sheets will take a bit hit, once again a winner of an argument that has proved its worth time and again.

Other lovely rollover lines include other-countries-do-it. Just look at the way the US bailed out its banks as well as companies like GM and Chrysler. You have to do it, the argument goes, when there’s a systemic crisis and, let’s face it, which airline firm is making money—you could argue IndiGo is, but that, as they say, is the exception that proves the rule! In any case, if you look at UTI or even the telecom bailout of 1999, the government actually made money out of the bailout. The old chestnut that workers will suffer if the airline closes down, it is truly surprising, hasn’t even been mentioned once, though it is obvious this has huge currency with the political class—that’s why India’s entire privatisation programme has ground to a halt over the past seven years.

It is true the arguments cited are one-sided, and partial truths at best, but someone of Mallya’s calibre is certain to be able to swing it while using them, so the bailout will happen. Here’s to the next F1!



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