From a King of Good Times to a Bhagora - Vijay Mallya

How a 9000 crore scam turned a King into a Bhagora ?

Image Source;- Filmybeat. com

Story of the demise of the once called King of Good times due to his extravagant lifestyles

The most glamorous personality, the business tycoon Vijay Mallya is in trouble for hush-hush escape from the country right around the time he is wanted by the Enforcement Directorate for money laundering. What lead to the scam of Rs.9000 crores in form of banking loan in a country like India where the banking norms requires so many documentation and securities even before granting a small amount of loan. So what happened actually? Here's all you need to know about the 'mess' this liquor baron has sunk himself into:

It all started with his Father  -Vithal Mallya

• Vithal Mallya, always been a good investor,, invested in shares of company UNITED BREWERIES LTD " UB GROUP"-the company which is mainly into beers and liquors.
• He started investing in this company  and bought some major stakes.Gradually, he became the director of the company and after years of experience he also became the chairman of the company.
• He expanded his business very well and simultaneously also started investing in other businesses also such as polymer,pharma and food.
• But the company which flourished most in his guidance was UB Group.
• But in the year 1983, he died and then Vijay Mallya became the chairman of UB Group at the young age of 27 years. 

And then Vijay Mallya took over his Father's Asset

• Vijay Mallya took over the chairmanship of the company when the turnover of the company was just Rs.350 crores and during his chairmanship the valuation of the company rose from Rs.40 crores to Rs.6000 crores.
• Even the most experienced employees of the company felt that this young chap has got strong determination which will lead the company towards greater heights of success.
• During his chairmanship he alike his father tried to invest in different businesses in order to grow his wealth.
• He tried his fortune in newspaper business,chemical business,engineering business, etc.
• But after trying his luck in all the other areas he got to know that  the main potential of money making is in beer and liquor business only and after realising this fact he shifted his entire focus on UB Group.
• His vision was to take his business at global level.
• He worked his ass off to achieve his vision and he got success too.Today the brand 'Kingfisher' is present in approximately 52 other countries.

Branding of 'Kingfisher' even when Advertisement of Liquor was not legalized in India

• When he was on the verge of expanding his company he came across a fact that the advertisement of liquor was not legalised in India - a country where the business of brewery can grow manifold.
• He bought  a house and named it as "KINGFISHER VILLA" and this name often flashed in news leading to its promotion by default.
• He sponsored various events to promote his brand name such as "The Kingfisher Ball event".
• He even bought IPL teams such as Royal Challengers to make his brand popular.
• And after doing numerous of such things, the "UB Group"  became the second largest liqour maker in the world in the year 2015.
• Vijay Mallya was declared as 40th richest person in India in Forbes 2007.
• He was even awarded with the degree of Doctorate in Business Administration by Southern California University and also the 'Enterprenuer of the year' award at The Asian Awards.

And then Kingfisher Airline Came into Picture:- 

• In the year 2005, Vijay Mallya on the ocassion of his son's 18th birthday(Siddharth Mallya) entered into aviation sector by introducing his own airlines named 'Kingfisher Airlines'.
• At that time Mr Mallya had no experience in civil aviation still he wished to grow the airline business as much as the UB Group.
• He instructed his staff to treat passengers as their guests and offer high end services and because of this approach the 'Kingfisher Airlines' was declared as the luxury brand for domestic travel.
• Soon within no time it became the second largest airline in domestic market having one fourth of India's share of domestic travellers.
• This success urged in him the desire to expand his airlines to the international route as well.

Acquisition of  Air Deccan-  a low cost airline:-

• Desiring for expansion he applied for it but got rejected as he was unqualified by experience.(As a matter of general fact as per the norms of the aviation sector one cannot enter into the international route without having 5 years of prior experience in the aviation sector.)
• He decided to takeover the Air Deccan airlines which was already on international routes - a decision which brought a turning point in his life.
• At the time of acquisition of Air Deccan, Kingfisher airlines no doubt was at the second position among domestic flights but in terms of profit alike other airlines it was bearing negative profits.
• But Mr. Mallya did not aimed for profitability, he aimed for expansion and in order to expand to international route he took debt to acquire Air Deccan which contributed to the increasing debt on the company.
• In order to expand to international routes and to maintain his existing company, he was gradually overburdened with debt.

 Bad Times for  Kingfisher Begins:-

• He renamed Air Deccan to Kingfisher Red and basically it was divided into two groups, that is, for low ticket fare-Kingfisher Red and for high fare and luxury - Kingfisher.
• Though being a low cost airline yet Kingfisher Red provided very good facilities in all respects. 
• This made people think that there was no use to spend such high cost for Kingfisher Airlines just for little extra comfort.
• Slowly it led to the shift of passengers from Kingfisher to Kingfisher Red which resulted in decline of the market share of Kingfisher Airlines.
• The company was not able to recover even the operating costs which led to more debt burden.
• In such a situation it became neccessary to increase the ticket fare of Kingfisher Red for the continuation of good faciities.
• But as the ticket fare started rising, simultaneously people started to shift to more cheap airlines which led to even the failure of Kingfisher Red.
• The other factors that too contributed to the failure of Kingfisher Airlines was high fuel prices and recession.
• The company was in such a bad condition that due to inability to recover the landing charges from the company, two of the airports named Bangalore and Hydreabad airports changed their policy for Kingfisher Airlines.
• Even the fuel supplying companies like Hindustan Petroleum and Bharat Petroleum denied to further supply any fuel to Kingfisher due to such outstanding debts and the delayed payment policy.
• Another company named Indian Oil  was ready to supply fuel to Kingfisher but only on cash basis.

  FAILURE IN FOREIGN DIRECT INVESTMENTS (FDIs)

• In such adversities it became quite difficult for Mr.Vijay Mallya to manage such a big company and so he decided to bring some foreign investment and he even convinced the foreign airlines 'ETIHAD AIRWAYS' to invest in his company.
• But the sad part was that the foreign direct investment was not allowed in civil aviation industry in India at that time and so he tried to convince government to change its policy but was unsuccessful in doing so. 
• The situation worsened for Mr Mallya and he was unable to make payment for the salary of the employees.
• Initially the employees supported Mr. Mallya but during such a bad phase also he was busy in taking models audition for Kingfisher Calendar.
• This fact was indigestible for the employees and they left Kingfisher after several months strike for non payment of salary and ultimately Kingfisher was closed.
• In the year December 2012, the government cancelled the license of Kingfisher Airlines.
• Later after a few years government allowed FDI investment in airlines but till then the Kingfisher was already closed.

Increasing Bank Loans:-

• Then slowly eventually things changed again  and Mr. Mallya got much support from India and he started taking maximum loans.
• He took loans from 17 different banks most of which were public sector undertakings(PSUs) namely: State bank of india - approx 1600 crores and IDBI bank - approx 800 crores. 
• As far as private banks were concerned two banks namely HDFC bank and ICICI bank came forward to grant loan to Mr. Mallya but they gave loan against the securities of United Spirits Ltd(UB group) and recovered their money by selling the shares.

Debt Restructuring:-

• Being overburdened with debt , finally Mr Mallya applied for debt restructuring to government.
• But as far as Mr. Mallya was concerned the meaning of debt restructuring only changed.In his case  the entire debt was converted into equity,that is,the entire loan was waived off 
• And in turn the company ,that is, the Kingfisher Airlines offered their shares to the banks converting their debt into the equity shares of 1400 crores loan by valuing shares of Kingfisher Airlines at Rs. 64.49 which were trading at only Rs. 39.90. 
• This valuation was done by the bank on the contention that presently the company was in bad position so the value of shares had fallen but the potential  of the company is such,that its share price can go up to Rs.65 ignoring the fact that the all time high of the share price of Kingfisher Airlines had been only Rs.48.

Political Pressure on Banks:-

• The big question arises that why the banks did so???
• It's a very well known fact that Mr. Vijay Mallya was a Rajya Sabha member. He had good political connections so it is very much possible that the bank's officials were under political pressure.
• Further, the company wanted to issue preferential shares for more fund raising and due to the banking norms it required a No Objection Certificate(NOC) from the State Bank Of India -Bangalore(As when a bank gives loan upto a certain limit then further if the company wants to raise fund it requires NOC from that bank to raise such funds). 
• But the officials of State Bank of India- Bangalore who at the first instance rejected MR Mallya's proposal and even denied to conduct a meeting with him later made their banking norms less stringent  to grant a NOC to Mr Mallya which again suggests that there was some political presssure which influenced the officials' decision.

The banks to which the Kingfisher Airlines(KFA) owes money are :-

17 Different bank KFA has to pay Rs.9000 crore (including Interest)

Final Action:-

• In March 2016, there was some negotiations going on between Mr Mallya and the banks. The amount of loan outstanding along with the interest was Rs.9000 crores at that time. 
• So, Mr. Mallya said that he was ready to pay Rs.6000 crores which is approximately the principal amount and the banks should waive off all the interest.  
• But somehow banks were not ready for it and a consortium of banks approached the Supreme court of india to stop Mr. Mallya from going abroad due to the pending money his companies owed to them.
• Meanwhile, during that time he fled to Britian and now Mr Vijay Mallya is in the ' WANTED LIST of INDIA' for the willful default.

Conclusion:-

• Ultimately when banks fall short of funds due to such scams it is our governmnet who help the banks by providing them funds in order to protect our economy.
• On the other hand, we, the citizens of this country when we come to know about such scams we think that let it be,it’s the money of banks which is going in vain.  
• But the point to think about is - Is it really the money of banks or it's our money that we pay to government in form of tax?
• At last,I would just like to leave you with one question to think about  -Why is it so difficult to waive off the loan of poor farmers and on the other hand so easy to waive off crores of loan of such rich and powerful individuals?

Say No to "Waste of Tax Payer's Money" 

!! I hope it was helpful !!

-By Nimisha Salampuria

Mail at nimisha@commerceinsiders.com

For further information contact at info@commerceinsiders.com

!! Thank You  !!