By Anjana Menon
Vijay Mallya has lost his mojo.
After shuttering his airline, selling off the bulk of his cash-oozing liquor business and leaving lenders gasping with more than Rs 7,000 crore of debt, he has put on boxing gloves to skirt being declared a ‘wilful defaulter’ by creditors. Kingfisher’s public and solemn failure and the struggle of its lenders to recover their money has made it apparent that India’s banking and insolvency regulations need a makeover, real fast.
Emerging India, teeming with startups, entrepreneurs with double Mallya’s ambition and half his flamboyance, sky-high valuations and rock-bottom margins have to be served rules that are transparent, uniform, ruthless and allow for bankruptcy for naming and shaming, for failure and resurrection, before it spirals out of control.
Kingfisher Airlines, started in 2005, was grandiose and personalised in a way no Indian carrier was. Even its signature in-flight greeting, delivered by Mallya in a fruity tone and dapper outfit, assuring all fliers of being his ‘’guests’’ — nearly lulled everyone into a cosy bond with India’s most spirited businessman. It was a service in the skies for those who, like Mallya, wanted a spot of good living.
By October 2012, however, the wheels came off. Kingfisher had been in operation for seven years, each of them hopelessly unprofitable. Its accumulated losses, at a numbing Rs 16,000 crore, matched the extravagance of its founder.
As Kingfisher stacked up these losses, taxpayer money dressed up as loans, was easy and forthcoming. Public sector banks didn’t instinctively or aggressively harden against Kingfisher. Instead, they coddled the airline.
In the meantime, his employees at Kingfisher were going unpaid, airports were unable to collect landing fees and fuel suppliers were retreating after emptying their tanks and declined payments. In the world of borrowing, the airline was fast becoming super-duper junk, a grade that commands the kind of racy-risk appetite that public sector banks can hardly claim as their lending strategy. But money had been lent.
Pilloried by striking employees, a frowning airline regulator and nervous lenders, the airline sputtered to a halt. By then though, there had been too much dawdling with no reality check. India’s outdated rules on bankruptcy stamped out any chance of a rescue for employees and state-funded creditors, who were hardest hit by the airline’s failure.
The steadily unfolding story smacks of a business environment where lax regulation, cronyism and inadequate bankruptcy laws are mixed to create privileges and immunity for a few and pain for the many.
It reveals the need for a punitive deterrent for banks that squander taxpayer money on private enterprises that have become untouchables. India’s banking regulator has to restore faith to show that all banks, more so public sector ones, follow the same stress test for all lenders, and that some can’t get oodles of money based on a promise and a hollow manifesto. Banking doesn’t run that way, only politics does.
India also has to put in place a bankruptcy law along the lines of a US Chapter 11 filing, which will give ailing enterprises a chance to continue operations while keeping creditors at bay.
Bankruptcy protection lets firms that work out a payment plan for creditors do its normal business and stay alive while preventing major expansions, buyouts or unwise sell-offs. It can and does save jobs. In cases where there have been willful mucking about or fraud by the management, typically a court appointed trustee runs the firm to steer it to normalcy while fraudsters serve time.
A bankruptcy protection law is far more pro-employee and creditor-friendly than India’s existing insolvency laws, usually the last resort for firms that have been declared so sick that there is no hope of any reasonable recovery. As more Indians come into the workforce and more entrepreneurs emerge, no business, private or public should be too big or too important to save itself from bankruptcy by admitting its about to belly-up and needs help.
For the good times to roll, we need good laws.
The author is a New Delhi-based independent writer
Vijay Mallya has lost his mojo.
After shuttering his airline, selling off the bulk of his cash-oozing liquor business and leaving lenders gasping with more than Rs 7,000 crore of debt, he has put on boxing gloves to skirt being declared a ‘wilful defaulter’ by creditors. Kingfisher’s public and solemn failure and the struggle of its lenders to recover their money has made it apparent that India’s banking and insolvency regulations need a makeover, real fast.
Emerging India, teeming with startups, entrepreneurs with double Mallya’s ambition and half his flamboyance, sky-high valuations and rock-bottom margins have to be served rules that are transparent, uniform, ruthless and allow for bankruptcy for naming and shaming, for failure and resurrection, before it spirals out of control.
Kingfisher Airlines, started in 2005, was grandiose and personalised in a way no Indian carrier was. Even its signature in-flight greeting, delivered by Mallya in a fruity tone and dapper outfit, assuring all fliers of being his ‘’guests’’ — nearly lulled everyone into a cosy bond with India’s most spirited businessman. It was a service in the skies for those who, like Mallya, wanted a spot of good living.
By October 2012, however, the wheels came off. Kingfisher had been in operation for seven years, each of them hopelessly unprofitable. Its accumulated losses, at a numbing Rs 16,000 crore, matched the extravagance of its founder.
As Kingfisher stacked up these losses, taxpayer money dressed up as loans, was easy and forthcoming. Public sector banks didn’t instinctively or aggressively harden against Kingfisher. Instead, they coddled the airline.
In the meantime, his employees at Kingfisher were going unpaid, airports were unable to collect landing fees and fuel suppliers were retreating after emptying their tanks and declined payments. In the world of borrowing, the airline was fast becoming super-duper junk, a grade that commands the kind of racy-risk appetite that public sector banks can hardly claim as their lending strategy. But money had been lent.
Pilloried by striking employees, a frowning airline regulator and nervous lenders, the airline sputtered to a halt. By then though, there had been too much dawdling with no reality check. India’s outdated rules on bankruptcy stamped out any chance of a rescue for employees and state-funded creditors, who were hardest hit by the airline’s failure.
The steadily unfolding story smacks of a business environment where lax regulation, cronyism and inadequate bankruptcy laws are mixed to create privileges and immunity for a few and pain for the many.
It reveals the need for a punitive deterrent for banks that squander taxpayer money on private enterprises that have become untouchables. India’s banking regulator has to restore faith to show that all banks, more so public sector ones, follow the same stress test for all lenders, and that some can’t get oodles of money based on a promise and a hollow manifesto. Banking doesn’t run that way, only politics does.
Bankruptcy protection lets firms that work out a payment plan for creditors do its normal business and stay alive while preventing major expansions, buyouts or unwise sell-offs. It can and does save jobs. In cases where there have been willful mucking about or fraud by the management, typically a court appointed trustee runs the firm to steer it to normalcy while fraudsters serve time.
A bankruptcy protection law is far more pro-employee and creditor-friendly than India’s existing insolvency laws, usually the last resort for firms that have been declared so sick that there is no hope of any reasonable recovery. As more Indians come into the workforce and more entrepreneurs emerge, no business, private or public should be too big or too important to save itself from bankruptcy by admitting its about to belly-up and needs help.
For the good times to roll, we need good laws.
The author is a New Delhi-based independent writer
