(Updates with closing share price in fifth paragraph)
Nov. 18 (Bloomberg) -- Billionaire Vijay Mallya spent three decades building a fortune promising Indians a taste of his lavish lifestyle. Now investors are counting the cost.
The seven publicly traded companies in India controlled by Mallya, 55, have seen their market value slump by 36 percent, or $2.5 billion, this year amid concern that his Kingfisher Airlines Ltd. will struggle to survive. The carrier, which has cut routes, posted its 16th straight quarterly loss on Nov. 14.
Mallya, whose empire encompasses the world’s largest distiller, India’s biggest brewer, its only Formula One racing team and a cricket squad said he has borrowed from “friends, relatives and associates” to prop up Kingfisher. The billionaire who refers to himself as “The King of Good Times,” shuttling between luxury homes on a private jet or his 311-foot yacht, has blamed his predicament on rising interest rates and government taxes.
“Usually reports of people with larger-than-life lifestyles are exaggerated but in his case, it’s an understatement,” said G. R. Gopinath, who created India’s first budget carrier which he sold to Mallya. “He’s going through a huge cash crunch but that hasn’t dented his lifestyle. It’s going to cause him embarrassment.”
Kingfisher fell 3.8 percent to 24.05 rupees at the close of trading in Mumbai, its first drop in five days. The shares have slumped 64 percent this year.
Sumanto Bhattacharya, a spokesman for the group, did not respond to an e-mailed list of questions and at least seven phone calls seeking an interview with Mallya for this report.
Kingfisher, which has $1.5 billion of debt according to data compiled by Bloomberg, owes the Indian government $83 million in taxes it deducted from its employees’ paychecks and has defaulted on loan payments, the company’s auditors said in the latest annual report.
“We have strong companies and business associates,” Mallya said in a Nov. 15 interview with Bloomberg UTV. “A lot of people for whom I have created wealth have faith in the business that we run.”
While Mallya controls the group through various holding companies, most of the stakes have been pledged as collateral for loans, according to disclosures to the Securities and Exchange Board of India, limiting his ability to raise funds.
The airline, which according to group Chief Financial Officer Ravi Nedungadi has negative net worth, is able to keep flying only as long as the founders can infuse funds, the company’s auditors said. Mallya’s United Breweries Holdings Ltd. has guaranteed the airline’s debt far beyond its own marketable assets, rendering both companies insolvent, according to a report by Toronto-based Veritas Investment Research Corp. in September.
“It’s complete lunacy,” said Taina Erajuuri, a money manager in Helsinki at FIM Asset Management Ltd., overseeing about 1 billion euros ($1.4 billion) of emerging-market assets. “I met Mallya and I told him that all the businesses should have separate accounts, and one should not be guaranteeing the other. He didn’t understand.”
Mallya rejects the idea that Kingfisher’s woes have affected his liquor businesses, describing United Spirits, his most valuable company, as “liquid gold” on his Twitter Inc. feed. The distiller, which posted a 5.7 billion rupee ($112 million) profit in the year ended March, plunged as much as 13 percent in Mumbai on Nov. 15 while he briefed the media about his plans to revive Kingfisher.
“Watching media reports and analysis that share price of United Spirits fell due to airline fears,” he wrote on Nov. 16. “How flawed.”
Mallya has staked both his reputation and personal fortune, estimated by Forbes magazine to be $1.1 billion, on the survival of Kingfisher. In the six years since he started the carrier, he has switched strategies, from adding business class to scrapping no-frills services. All along he claims to manage the smallest details, from selecting the cutlery onboard to handpicking the stewardesses and their short red skirts.
For flights between India and London, Mallya replaced rows of seats on Airbus SAS A330s with a bar where business-class passengers could sip 12-year-old Scotch whisky, before returning to red leather seats for meals of foie gras and rack of lamb washed down with Dom Perignon champagne.
‘We Are Magicians’
The aim was to offer customers a taste of his glamorous existence. A video welcoming passengers on the back of every seat features Mallya saying he has instructed the crew “to treat you as guests in my own home.”
“We are magicians,” Gopinath said Mallya told him as they debated the extra cost of onboard service. “He very clearly said that I can spend a thousand rupees and make it look like we spent ten thousand. But it turned out to be two thousand.”
The magic may not have completely worn off. Kingfisher stock jumped 14 percent, the most since May 2009, on Nov. 16 after Mallya dismissed speculation of an imminent collapse and said he’s had an approach from an unidentified investor to help turn around the carrier.
“Mallya has got the aggressive business strategy and the vision to be able to pull this off,” said Nawal Taneja, a professor of aviation at the Columbus-based Ohio State University who has written seven books on the aviation industry, and discussed strategy with Mallya in the past. “What he needs is some time, the right kind of implementation and funds.”
Finding those funds may prove difficult. The worst- performing major Asian market this year precludes him from selling equity at home, while the second-highest borrowing costs in the region make it tougher to raise more debt. The company has a $292 million one-year loan due on Jan. 8, according to Bloomberg data.
Kingfisher is “exploring all avenues” to raise funds through equity, Nedungadi said in a mobile phone text message today. “Some parties have approached us,” he said without elaboration.
The 12 percent depreciation in the rupee and fuel taxes that average about 25 percent may result in Indian airlines losing about $2.5 billion in the year ending March, including losses of as much as $2 billion at state-run Air India Ltd., according to the CAPA Centre for Aviation.
Outside the world of business, Mallya, is an appointed lawmaker in the Rajya Sabha, the upper house of India’s parliament. S.P.M. Syed Khan, a former Rajya Sabha member who served alongside Mallya during his first term describes him as “the most glamorous of all MPs,” and known for giving generous tips to parliament staff.
Mallya signed the attendance register at the Rajya Sabha on 41 of the 115 days that the house met during his latest tenure, according to records maintained by parliament.
“He was always on the move,” said S. Anbalagan, who also served with Mallya. “He used to sit for five minutes in the front bench and then swiftly leave. In my term, I’ve only seen him 5 or 6 times. I’m not finding fault with him, but that’s his lifestyle. He’s a businessman.”
Mallya built Kingfisher and his liquor, fertilizers, and engineering conglomerate, UB Group, after inheriting United Breweries Ltd. from his father at the age of 27. In the year ended March 31, United Spirits sold 100 million cases making it the world’s largest distiller by volume. United Breweries makes India’s biggest-selling beer, Kingfisher Strong.
Since 2006, Mallya has acquired Glasgow, Scotland-based Whyte & Mackay Ltd. for $1.2 billion and paid $109 million for the Dutch auto racing team, Spyker Formula One, which he renamed Force India.
His assets also include the Indian Empress, the 95-meter (311-foot) yacht which is used in photo shoots for the annual Kingfisher calendar, modeled on the Pirelli & C SpA offering and featuring women posing in bikinis in exotic locations. This year’s models were picked in a televised hunt on NDTV Good Times channel, a collaboration between Mallya’s companies and New Delhi Television Ltd.
Gopinath says Mallya has “a way to get things done” through a combination of hard work, sharp thinking and charm. Still, a focus on luxury is a mistake in the Indian aviation market, he said.
“I think he was too close to the lifestyle product that he created,” said Gopinath. “That did not allow him to get people with a different point of view. Sometimes it’s good to distance yourself from your baby.”
--With assistance from Karthikeyan Sundaram in New Delhi and George Smith Alexander in Mumbai. Editors: Arijit Ghosh, David Merritt
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