The Year that Was: Vijay Mallya’s Double Life

Burning tyre at Formula 1 races in Kuala Lumpur, Shanghai and Bahrain, cheering filly Set Alight at the Mumbai Derby, galloping to South Africa to watch Royal Challengers battle at the Indian Premier League (IPL). April was busier than usual for Vijay Mallya.

Yet, in the middle of all this, Mallya has been leading a double life. He has spent the past few months negotiating for the survival of his empire. The economic slowdown has made his daring bets of the boom period look like risky gambles. A look at the published results for six listed companies in the group reveals a total debt of Rs. 14,231 crore for Kingfisher Airlines, United Spirits (USL), UB Holding, Mangalore Chemicals, UB Engineering and United Breweries (UB).

At the core of this battle is Kingfisher Airlines, losing cash at an alarming rate in the middle of the decade’s biggest fall in passenger turnout. The debt on the airline’s books is over Rs. 5,000 crore, much of it guaranteed by United Breweries Holding Ltd., the group’s holding entity. Four months ago, aircraft leasing company GE Commercial Aviation (GECAS) wrested back four jets it had leased to Kingfisher after the airline defaulted on lease payments.

Mallya’s golden goose, of course, is his alcohol business. USL has 52 percent market share. It is this edge that Mallya will try to cash on. A lesser businessman might have caved in under the burden but not Mallya. Those who know him closely say he will pull through, just like he has done on many occasions in the past.

He managed to swing is a marketing agreement with Dutch beer maker Heineken to sell the latter’s brands through the UB network. The deal is expected to fetch UB Rs. 300 crore.

But the levels of debt have spooked bankers. So while Mallya is pushing for a package of about Rs. 2,000 crore to pull his airline out from the brink, negotiations have been hard.

Mallya urgently wants to conclude at least two deals. First, he has set a target to raise $800 million for a 14.9 percent stake in USL. He is also banking on a 49 percent stake sale in Scotch whisky maker Whyte and Mackay with a distribution management deal. If this works out, he’s hoping to make USL debt-free in one fell swoop.

But before that, he’s got to take some hard decisions in his airline business. Mallya relentlessly pursued new purchases that have led to the current mess. Mallya remains hopeful that the new government would allow Indian airlines to sell a stake to foreign investors.

Till his deals fructify at the valuations he seeks, Mallya is hoping that a team of public sector banks share his burden. It’s only a matter of time before the king of good times gets a lifeline thrown to him to fly high all over again.

(Additional reporting by Rohin Dharmakumar)

- This article was earlier published in Forbes India magazine dated June 5, 2009.

WHY DID WE DO THE STORY?
The king of good times, Vijay Mallya, is always good material for a story. With interests in liquor, sport, aviation, fashion and a high-octane lifestyle that a million others can only dream of, he is rarely off the news pages. But in the months leading to our story, he had his back against the wall.

The airline industry the world over was in the grip of a severe slowdown; most airlines were losing money. This happened at the time Mallya’s Kingfisher was taking delivery of the dozens of planes it had ordered earlier. Most of these aircraft could not be used for months and had to be parked at the airports.

We spoke to dozens of people who knew Mallya, had worked with him had lent him money for business. Most newspaper reports at the time focussed on Kingfisher’s defaults to suppliers like oil companies. Alarmists expected the airline to fold up. Yet our enquiries with people in the liquor business and elsewhere revealed that this was not the first time Mallya found himself in such a trap. He had emerged out of similar holes earlier. Though the magnitude of debt was much higher this time, he was after all a past master in taking big bets with borrowed money. The story, hence, detailed how he was juggling a profitable liquor business with a bleeding airline business and biding his time till the travel market improved.

WHERE DOES THE STORY STAND?
The market did improve in the following months and Kingfisher has managed to hold its place. Though still reeling under loses (it has lost Rs. 1500 crore in April-December 2009), revenues have improved. As more seats got filled up in its planes, Kingfisher has opened new routes to Indian and overseas destinations. Vijay Mallya has also been successful in raising debt from domestic banks. His problems have not fully gone away, but he has belied the pessimist views on his airline’s future.

What’s more, his Bangalore Royal Challengers cricket team made it to the semifinal of the Indian Premier League this year; and team Force India has been garnering points on the Formula 1 circuit.