ED investigation in IDBI case: KFA loan collateral based on projected revenue math

Interestingly, in April 2014, after KFA defaulted on the loans, the banks put up the nine pledged trademarks under the Kingfisher Airlines brand for sale.

Written by Khushboo Narayan | Mumbai | Published:June 15, 2017 1:16 am
The airline’s brand had been registered separately from the Kingfisher beer trademark.

An Enforcement Directorate (ED) probe has revealed that Kingfisher Airlines while seeking a loan from IDBI Bank, did not disclose to the bank that the Rs 3,406-crore valuation of the Kingfisher brand kept as collateral was derived based on a projected revenue of the firm in fiscal 2008-09, which was about 30 per cent more than the actual income in the same period.

According to an ED prosecution complaint, accessed by The Indian Express, the agency said the projected revenue of the carrier for fiscal 2008-09, that was used for brand valuation by consultancy firm Grant Thornton, was Rs 7,862 crore, whereas the reported income in the audited balance sheet for the period was Rs 5,577 crore. It also said the bank did not scrutinise the valuation of the brand collateral, despite having the audited balance sheet.

“… there was a difference in the projected figures as compared to the actual figures achieved by M/s KAL which is to the tune of 30 per cent (approx). However, this fact has not been reported by M/s KAL in its loan application nor the IDBI bank, at any point of time during the scrutiny of the loan application, have ascertained or sought any clarification from M/s KAL,” said the ED complaint filed in a Mumbai court on Wednesday.

The brand name was pledged to 14 lenders, including State Bank of India (SBI), under a debt recast agreement in which loans worth Rs 6,500 crore were restructured and converted to equity.

The airline’s brand had been registered separately from the Kingfisher beer trademark. The ED prosecution complaint has also said that the Kingfisher Airlines brand valuation report by Grant Thornton was “only for the internal purpose, accounting and reporting, not to be used for any other purpose, without the consent of Grant Thornton”.

However, KFA did not seek “any clarification or consent on the aspect of brand valuation that was being used for availing loans”. Grant Thornton in its statement to the agency said the “brand valuation was on a going concern basis and it has not got any independent sale value”. The ED complaint has alleged that senior bank officials conspired with Vijay Mallya-led Kingfisher Airlines “to project and accept brand value as collateral, in spite of the same being a hypothetical asset and suffering from deficiencies”.

“PMLA investigation revealed that the Kingfisher brand was accepted as collateral security and valuation for Kingfisher Brand was accepted by the IDBI bank as Rs 3,406-crore without independent verification,” said the ED complaint.

Interestingly, in April 2014, after KFA defaulted on the loans, the banks put up the nine pledged trademarks under the Kingfisher Airlines brand for sale. However, till date the banks have been unsuccessful in selling the brands. The nine trademarks that remain unsold include Fly Kingfisher, Flying Models, Funliner, Fly the Good Times, Kingfisher and Flying Bird Device, registered in the name of Kingfisher Airlines or held by the UB Group but transferred to the airline for use.

Kingfisher owes over Rs 9,000 crore to 17 lenders, including the SBI, IDBI Bank, Punjab National Bank, Bank of India, Bank of Baroda, United Bank of India, Central Bank of India, UCO Bank, Corporation Bank, Indian Overseas Bank, Federal Bank, Punjab and Sind Bank, and Axis Bank, among others.

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