Another one bites the dust

M V Doshi’s hopes of seeing the good times have all but frittered away. The Doshi promoted LKP Finance had subscribed to the now-beleaguered Kingfisher’s optionally convertible debenture (OCD), which was offering a coupon of 8%, in January 2011. Kingfisher had allotted over 7 crore OCDs to LKP Securities, Redect Consultancy and Star Investments when the share was trading at Rs.66 levels. As per the terms of the issue, the holder had the option to convert the debenture into equity shares within 18 months from the date of issue.

But the downturn for the Vijay Mallya-owned carrier meant that like all other lenders who had taken a hit, LKP Finance, too, had to bear the brunt. In February, Kingfisher issued 7.98 crore equity shares to the three entities at Rs.25.01 per share in lieu of the debentures. Of the total shares issued, LKP got 80 lakh shares. Four months later, in the end of June, LKP Finance had to again convert Rs.160 crore worth of debentures into equity shares in the range of Rs.21-23 a share. Kingfisher’s latest shareholding, as on June 23, showed LKP with13.32 crore shares, that is 16.48% stake, in the airline.

Anish Unadkat, CEO, equities, LKP Finance, refused to talk about the deal saying, “Doshi was in the know.” Doshi, too, was unavailable for comment.

Crash landing

Lenders are unlikely to sell any shares given that the stock has hit a nadir

It’s not surprising to see that LKP has been on a selling spree post allotment. It has offloaded 3.75 crore shares in five tranches between July 3 and July 13 through bulk deals on the NSE. The NBFC sold the shares at an average of Rs.11.11 a share, totalling Rs.42 crore. While the first tranche of 81 lakh shares was sold at Rs.12 a share, the last tranche of 51 lakh shares was offloaded at Rs.10.41 a share.

Incidentally, LKP is the largest shareholder. Technically, the promoters hold 36% stake, but excluding the pledged shares, their holding is less than 4%. But that’s hardly any consolation for LKP, given that the stock has more than halved since the year began. The stock was last traded at Rs.10.27 as on July 11. While LKP has been selling its stake in the open market despite the steep erosion in the stock price, other institutions are waiting. Perhaps, hoping for a recovery, triggered by any possible change in government policy. There is no guarantee on if and when FDI in aviation will be introduced in the future.

In other words, Doshi’s LKP will have to wait it out like other PSU lenders. “While it’s unlikely that the government would want the airline to go under, given the exposure that most PSU banks have to the airline, it will be a long wait till foreign direct investment in the aviation sector becomes a reality,” says Ambareesh Baliga, COO, Way2Wealth Brokers. Unfortunately, even that attempt, whenever it happens, may not be enough to revive the ailing airline that is now left with just 12 aircraft (down from 66) and saddled with Rs.8,000 crore debt.