By Sai Manish From dna

Kingfisher Airlines had leased 26 of its 64-aircraft fleet through offshore companies in tax havens like Cayman Islands and Mauritius and paid rents far above market rates, documents accessed by dna indicate.

The Central Bureau of Investigation (CBI) suspects some of them were ‘dummy’ companies and were floated specifically for generating over-valued lease rental invoices.

These inflated rentals were then paid through bank loans. There was a substantial difference between the actual rental and the inflated invoice, and that money disappeared through companies based in Cayman Islands and Mauritius, sources said. The CBI is yet to ascertain where the money finally landed.

Company balance sheets show that between 2007 and 2012, when the airline was grounded, Kingfisher spent a lion’s share of its expenditure on leasing and operating fleet — a mix of ATR 72-212s and Airbus models.

The Cayman Islands companies from where Kingfisher leased aircraft had addresses in the buildings of global finance and law firm MaplesFS. In 2008, US President Barack Obama during his presidential campaign had described this building as the world’s biggest front for tax evasion.

Kingfisher leased 12 ATR 72-212As from four companies with the same address: PO Box 1093, Queensgate House, South Church Street, George Town, Cayman Islands, documents show.

Two aircraft were leased from Hubli Aircraft Leasing Co, one from INDEC Turbo Leasing Co, two from Turbo 72-500 Leasing Co and seven from KF Turbo Leasing Co. It bought two 72-seater ATR 72-212 A from Hubli Aircraft Leasing Ltd.

In a written response to dna, MaplesFS Cayman denied any link to the companies. “Please note that the entities you reference (sic) are not subsidiaries of MaplesFS or part of the MaplesFS group of companies.”

Similarly, 14 aircraft were leased from companies in the office buildings of financial firm Walkers SPV. All seven companies bore the same address: Walker House, 87, Mary Street, George Town, Cayman Islands.
Two planes were leased from Hubli Aircraft Leasing Ltd, one plane was leased from Paisley Aircraft Leasing Ltd, two from TP Leasing (Cayman) Ltd, one from Tana Aircraft Leasing Ltd, an Airbus A-320 from Trapper Aircraft Leasing Ltd, three from ACG Acquisition (Cayman) Ltd and one each from MSN 939 Leasing Ltd and MSN 946 Leasing Ltd.

Kingfisher chief Vijay Mallya’s personal 22-seater Airbus A319 was also leased from a company named CJ Leasing (Cayman) Ltd, bearing the same address.

Walkers SPV partner Richard Munden, in a written reply to dna, said: “I cannot disclose any information on these matters. I hope you are able to find the information you require elsewhere.”

The CBI is examining whether IDBI’s Rs 700 crore loan was used for some of the payments, sources said. IDBI has the second-biggest exposure to Kingfisher, after State Bank of India (Rs 1,623 crore).

“These allegations are false and are denied,” said Sumanto Bhattacharya, spokesperson of the UB group, of which Kingfisher Airlines is a part.
A forensic audit of Kingfisher’s account carried out by Ernst & Young for SBI revealed discrepancies similar to the ones sniffed by the CBI. The only difference is that the payments pertain to entities based in Mauritius rather than the Cayman Islands.

Kingfisher leased two planes from a company called Plateau Aviation Ltd with offices in the premises of INVESTEC Trust in Port Louis, Mauritius.

It also leased two planes from Veling Narain Ltd and Veling Sacheedanand Ltd. The report pointed out that Kingfisher paid exorbitant lease rents for the two planes (VT-KAH & VT-KAG) from Veling. According to the audit, the prevailing rentals of the aircraft were no more than $100,000-$110,000 per month. However, Kingfisher paid, on an average, $199,200 per month to the Mauritius-based company.

“Multiple payments were made to the company from 2007 to 2012. Sometimes, Kingfisher paid three months’ rent together. Excess payments to the tune of millions of dollars were made during the period,” a bank source said.

Kingfisher Airlines’ balance sheets show that in 2009-10, the airline’s minimum lease contributions for operating leases stood at an astounding Rs 5,878 crore. In addition, its finance leases added up Rs 920 crore. It was the highest in the domestic aviation industry at the time.

Said Bhattacharya: “It would be inappropriate for Kingfisher Airlines Ltd to make any comment since the matter is sub judice in various courts, including Bombay High Court.”

It might have been over two years since Mallya’s airline was grounded. Given the alleged recalcitrance of it owners to pay up the debts, there remains little hope that India’s public sector banks can recover even a fraction of the Rs 7,000 crore Kingfisher Airlines owes them. That might be bad news for India’s banking system, already saddled with bad debts worth over Rs 2 lakh crore.

(The first part of the series is re published below)

For more on this story go to: http://www.dnaindia.com/money/report-did-kingfisher-money-disappear-in-cayman-mauritius-2061656

Related story:

Of Rs 7,000 crore lent to Kingfisher, banks can now recover just Rs 6 crore

By Sai Manish

As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India’s public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya’s grounded Kingfisher Airlines.

Documents, forensic reports and accounts of people from across the world studied by dna reveal that members of the 17-bank consortium of lenders led by SBI may never be able to recover the money loaned to Mallya’s airline.

The State Bank of India (SBI), the major lender to Mallya’s airline, till now has managed to recover only Rs 155 crore out of the Rs 1,623 crore due from it. dna has learnt from official SBI sources that the value of Kingfisher Airlines pledged to the bank has now plummeted from Rs 4,000 crore to Rs 6 crore! SBI is unable to find a single buyer for the ‘Kingfisher’ trademarks. And Kingfisher Airlines has told Indian courts that it is not in a position to payback its debts.

According to the hypothecation deed signed between SBI and Kingfisher Airlines on August 10, 2010, SBI was given ownership of all trademarks and goodwill if Kingfisher Airlines failed to repay its debts.

These included Fly Kingfisher (label mark & word), Flying Models, Fly The Good Times, Funliner & Kingfisher (label mark). In 2009, global consultancy firm Grant & Thronton valued Kingfisher trademarks at Rs 4,111 crore or roughly $1 billion. In 2012, when the airline’s licence was suspended by India’s aviation regulator Director General of Civil Aviation (DGCA), Kingfisher Airlines valued itself at Rs 3,008 crore. The current value of the trademarks now stands at a mere Rs 6 crore! “We have put it up for sale. But have not received any satisfactory responses till now,” according to official bank sources.

Year Brand value of Kingfisher Airlines Money owed to banks (estimated)

2009: Rs 4,111 crore : Rs 4,000 crore

2012: Rs 3,008 crore : Rs 7,000 crore

2014: Rs 6 crore : Rs 7,000 crore

The role of some banks is also quite suspicious. One of the banks under the radar of the CBI for its loans to Kingfisher Airlines is IDBI. CBI sources reveal that IDBI had extended loans to Kingfisher despite being warned by some board members not to do so. The result is that the bank has ended up with bad debts of Rs 700 crore. Curiously, IDBI gave the loan to Kingfisher after being pledged the airline’s now ‘junk’ trademarks worth a mere Rs 6 crore!

Among the medium-sized banks, Bank of India is owed Rs 308 crore. The bank was mortgaged all the current assets of the airline. It included items like air conditioners, tractors and monetarily unsubstantial items like folding chairs. The bank has been struggling to recover even a fraction of its loan from the sale of Kingfisher’s bag of random goodies. How could a bank give over Rs 300 crore after being pledged office stationary like boarding pass printers & folding chairs remains a mystery. BOI did not respond to dna’s questions.

Sumanto Bhattacharya, spokesperson of UB Group, denies manipulating the banks, “There is no question of any deliberate undervaluation by Kingfisher Airlines Ltd as the banks themselves had conducted their own due diligence including the security available and also satisfied themselves about the viability of Kingfisher Airlines Ltd before undertaking the debt restructuring.”

Documents accessed by dna show that Mallya had also given a personal guarantee of several other physical properties – one of which was his ‘Hollywood’ style Kingfisher Villa located at Candolim, Goa. SBI is awaiting a reply from the District Magistrate who has to give permission for police personnel to step in and help the bank recover the property. The application is yet to be even listed for hearing. Even if SBI gets physical possession of the property, all it will manage is to dent Mallya’s ego. The value of the villa, though higher than Kingfisher trademarks, is barely a fraction of the Rs 1,600 crore that Mallya owes SBI.

Another one of ‘irrecoverable’ properties was Kingfisher House, measuring over 17,000 square feet in Mumbai’s suburban Andheri locality, which was given as a personal guarantee by Mallya. The property was originally hypothecated to Punjab National Bank in 2010 and Kingfisher Airlines owes the bank Rs 290 crore. Kingfisher Airlines refused to part with the property and the matter is currently listed in the Chief Metropolitan Court in Mumbai after SBI filed an application under the securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI) Act, 2002.

Sumanto Bhattacharya, spokesperson of the UB Group, denies playing hardball, “Kingfisher House is owned by Kingfisher Airlines Ltd and not Mallya. Kingfisher Villa is owned by United Breweries (Holdings) Ltd and not Mallya. In any case, Kingfisher Airlines Ltd is a party defendant to proceedings filed in the Goa courts by United Spirits Ltd in respect of Kingfisher Villa and since the matter being sub-judice it won’t be appropriate to comment on it.”

Perhaps more curious is the case of Indian Overseas Bank. The airline owes IOB a sum of Rs 108 crore for which it had mortgaged two helicopters in 2008. IOB did not respond to dna’s questions on the whereabouts of the choppers. It is believed that the Eurocopters were not in flying condition and the bank is struggling to dispose them of to recover its bad debts. IOB is now a loss-making bank having posted a Rs 516-crore loss this quarter.

There are other smaller banks in the consortium which have lent money to Kingfisher Airlines after being pledged the airline’s current assets. Central Bank of India gave a term loan of Rs 350 crore on the condition that all sale proceeds and lease rents would be remitted in an escrow account with the bank. The airline was grounded within a year and the bank couldn’t recover the money. Banks like Corporation Bank, State Bank of Mysore and Vijaya Bank gave loans of close to Rs 400 crore after being pledged all movable assets, movable assets and plant & machinery of the airline.

Many of the banks have reached a dead end. A realisation has dawned on them that Rs 7000 crore of public deposits they lent to Kingfisher Airlines have vanished in thin air. Chances of even recovering even a fraction of the amount seem to be fading by the day.

For more on this story go to: http://www.dnaindia.com/money/report-of-rs-7000-crore-lent-to-kingfisher-banks-can-now-recover-just-rs-6-crore-2061256