Save Kingfisher; Dump Mallya: Swaminathan S. Anklesaria Aiyar

Kingfisher Airlines is deep in the red. Should the government organize its rescue? When millions of small businesses are allowed to go bust when banks cut off credit to thousands of smaller defaulters, rescuing Kingfisher will smack of crony capitalism.

The airline has defenders too. Kingfisher has justly earned a reputation for excellent service standards. Quality is always worth preserving. We need to save Kingfisher without saving Mallya.

Its main competitor in quality, Jet Airlines, has frequently made good profits, while Kingfisher never has.

Kingfisher has already been rescued. Banks converted unpaid loans to Kingfisher into equity at a very favourable premium of 62% to the ruling market price, a tribute to Mallya’s political clout rather than company’s future prospects . Even after that the company has sunk deeper into the red. Even after being restructured and slashed, its debts exceed Rs 7,000 crore. Government concessions to the industry may save other airlines, but not Kingfisher.

A failed management must be changed. That’s normal in a market economy.

If Mallya really wants yet another chance, he must be told to bring in at least Rs 3,000 crore of fresh equity. If he cannot entice the investing public—which is probable--he must sell his other assets. Apart from liquor company UB Holdings, he owns stakes in the cricket team Royal Challengers, Bangalore; the Kolkata football teams Mohun Bagan and East Bengal; and the Formula 1 team Force India. In many other countries his bankers would force him to sell these.

If Mallya will not sacrifice his other assets for Kingfisher , then he cannot ask others to sacrifice their financial interests for him. His creditors should acquire the company and auction it.

Swaminathan S. Anklesaria Aiyar in The Times of India. Here and Here

IMF loan to Greece?

Few Indians are interested in Greece’s fiscal crisis, or the proposed IMF loan of 15-25 billion as part of a European rescue package. But Indians should worry. IMF resources raised for low and middle income countries are being diverted to bestow a special favour on a rich European country.

Greece’s problem is European, and should be tackled by its rich European brethren. It should not dip into limited IMF funds raised for poorer countries.

The global financial system was paralyzed in September 2008. All trade credit to India vanished. So did foreign loans to Indian corporates. Foreign institutional investors, who earlier poured billions into India, pulled out $9 billion in 2008. The situation was worse in other developing countries. The IMF’s lending capacity of $250 billion proved pathetic when trillions in global finance vanished.

So, in 2009 the G-20 agreed to triple the lending resources of IMF. Many developing countries contributed , including India, knowing they might need this in the next crisis. None dreamed that the expanded facility would be used to bail out rich members of the eurozone like Greece, Portugal or Spain.

Yet it is now clear that in a worstcase scenario, these countries will require the mother of all bail-outs . A JP Morgan economist has calculated that $750 billion might be needed by Greece, Portugal and Spain. Greece alone might require $150 billion, and might go bust even after that. Bond markets fear that Greek bondholders may lose 30% of their money.

From Swaminathan S Anklesaria Aiyar's article in The Economic Times

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