Auditors warn of ‘Kingfisher Airlines’ being a ‘going concern’ problem in the making!

Todays Economic Times Headlines scream that Auditors warn of ‘Kingfisher Airlines’ being a ‘going concern’ problem in the making!

http://economictimes.indiatimes.com/news/newsbyindustry/transportation/airlines/aviation/Vijay-Mallya-promoted-Kingfisher-Airliness-auditor-BK-Ramadhyani-Co-raises-doubts-over-companys-survival/articleshow/9987287

 

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/kingfisher-airliness-auditor-raises-doubts-over-companys-survival-stock-falls/articleshow/9989691

 

In mid 2009,I had blogged twice on KF Airlines…once when their Cheques were bouncing and later when they valued their Brand and took loans against this !

Some Wednesday Wanderings !…May’s Heat Wave causing a Lot of Bouncing !…Kingfisher Airlines Cheques…Adnan Sami…Tata’s JLR Debt woes forcing sale of TCS Shares…and our Sensex !

Wednesday, May 6th, 2009

Borrowing against Brands !…Interesting,but Risky area opening out !

Thursday, July 23rd, 2009

The Risk is clearly playing out for KF Airlines…It has never stopped bleeding

What will be the Brand Value of Kingfisher Airlines if there is no Airline left !…How then will SBI recover what it has lend KF Airlines against their Brand Value ! ?

Borrowing against Brands !…Interesting,but Risky area opening out !

For Years ,Brand Valuation has been part of my sessions on Valuation of Equity at BSE and Other Forums….so it was with great Interest that I read the Economic Times Front Page atricle today on ‘Cos flash brands to raise cash’

Strapped for cash,Kingfisher Airlines has managed to Borrow from State Bank of India against it’s Brand of ‘Kingfisher Airlines’ which has been valued at Rs 1900 crs,that’s US $ 391 Million at an Exchange Rate of US $ =Rs 48.50 

Interestingly,Kingfisher Airlines has actually included this Brand Value as an Asset in it’s Balance Sheet…If it had not,then the Debt/Equity ratio would have computed higher….However,It’s probably because the Brand  is shown in the Balance Sheet,that PSU Bank,State Bank of India has been convinced to lend against this Asset

‘Kingfisher Airlines’ is a seperate registered Brand than ‘Kingfisher’ for Beer and Wines…Just a thought…if the Airlines defaults ,then the bank could opt to make the Brand it’s property…It would need to monetise this to recover dues…so it will have to sell the Brand !…to a Competitor Airline or a new Airline maybe !?…does the Borrowing Agreement categorically state that this Brand also include all the licenses and permissions  etc ?…what’s the hairline % taken by the Bank for this Asset value when lending?

Now Brand Value,like Intellectual Property Rights and Goodwill is an Intangible Asset.It normally is never reflected in the Accounts,because no real consideration has been paid for it…Thus this makes this Asset Class,riskier to lend against…It may be difficult to liquidate or realise monies for it in case of default

Being an Intangible,Brand Valuation is one of the most subjective and controversial areas in Valuation…Valuing Tangible Assets is a more objective exercise

Will Banks lend against Brand Value even if it is not reflected in the Books as an Asset !?

Clearly,Corporates appear to be running out of Tangible Assets to pledge or offer as Collateral and therefore borrow against…….They are resorting to prop up their  Brand Values for actual Funds leverage

An interesting Valuation and IPO assignment I was involved in recently,threw up this demand from the Promoters when we were working to price the placement and the IPO…”Does not our Brand count for anything ?”…Of course it did…In fact it is one of India’s largest companies in it’s field and has been in existence for over a hundred years !….but potential buyers were reluctant to negotiate a higher valuation that included,both soft and  hard numbers read more

Some Wednesday Wanderings !…May’s Heat Wave causing a Lot of Bouncing !…Kingfisher Airlines Cheques…Adnan Sami…Tata’s JLR Debt woes forcing sale of TCS Shares…and our Sensex !

  • While the ‘King of Good Times’ bounces around in South Africa with his Cheerleaders cheering his ‘Royal Challengers’ in the IPL,his Kingfisher Airlines Cheques are bouncing here in India as the Airline faces more severe Royal Challenges that surely should be of a higher Priority
  • Have a look at the Times of India’s Mumbai Edition this morning…The’ve got Singer,Adnan Sami and his woes in three full blown reporting pieces on Page 1,3 and even 4 !…If you put them all together,it’s nearly a full page of Times Reporting on Adnan Sami !…They don’t even cover our PM like this ! Hey Guys ! You too have caught the ‘Bug’ Adnan Bug like his wife has !….It’s rather amusing that neither Adnan,nor his estranged wife are Indian Citizens…yet to settle their internal disputes and woes the’re using our Indian Police and Courts !…This is the beauty and graciousness of our Indian Democracy…welcoming one and all to come and use it’s facilities !….Just deport both to their own lands and see how their disputes will either be solved overnight or die a natural death quickly !…Hey ! Sami ! maybe crooning your hit song ‘Lift Kara De’ may be your prayer from out of all these woes !
  • Tata’s need to repay a bridge loan in June 2009 that was taken to part fund their purchase of Jaguar….Sigh !…yet again they have resorted to selling of part of their crown jewels !…Tata Sons have sold off 10 million shares of TCS today at Rs 627.25 to 15 different Institutions to raise Rs 627 crs…In fact in calender year 2008,TCS’s share price dropped by 44% ,twice the size of drop of competitor, Infosys….the reason was this very issue of selling pressure of  TCS shares by Tata Sons in 2008 
  •  Sensex is now 12000 and waiting for buying suckers…expect correction…the speed and scale of this 45% rise inside two months begs for it !