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Three months before he left India with $1.4 billion in unpaid bills hanging over his head, the man who called himself the King of Good Times gave a party for himself.
Vijay Mallya, a beer-and-airline magnate who publishes a swimsuit calendar and cavorts with celebrities, invited the pop singer Enrique Iglesias, the Bollywood star Sonu Nigam and some top Indian business figures to his villa in the coastal Indian state of Goa to celebrate his 60th birthday. “My biggest assets are my friends,” he told the revelers, according to a local media report, “and they are all here tonight.” The party — for Mr. Mallya and for the rest of corporate India — is now over. Banks in India and elsewhere are pressing Mr. Mallya to get their money back. Authorities accuse him of money laundering, bribing bank officials, defaulting on loans and other misdeeds. Last weekend Indian authorities canceled Mr. Mallya’s passport, nearly a week after a court in Mumbai issued a warrant for his arrest. On Thursday, India’s Foreign Ministry said it would ask Britain — where authorities believe he is staying — to deport him.
Mr. Mallya is now widely pilloried by the news media and by some politicians in India as one of the worst examples from a corporate borrowing binge that has mired the country in bad debt. Economists and government officials say heavy corporate debt and bad bank loans are holding back growth and harming Prime Minister Narendra Modi’s ambitious economic agenda. “We hide the sickness and ultimately it’s the poor who suffer,” said K. C. Chakrabarty, a former deputy governor of India’s central bank. “We are addressing Vijay Mallya. He’s not the problem. He’s the symptom of the problem.” Mr. Mallya, who left India last month, disputes accusations by Indian lawmakers and lenders that he fled the country to avoid bad debts. “I am an international businessman,” he said on Twitter. “I travel to and from India frequently. I did not flee from India and neither am I an absconder. Rubbish.” Even in a time when China, Europe and other places grapple with bad debt, the depths of India’s once-hidden problems are notable. Pressed by the central bank in September to come clean about their debt woes, India’s banks are reporting billions of dollars’ worth of loans that most likely will not be repaid. Credit Suisse estimated that bad loans in the final months of last year totaled nearly $128 billion, making up more than 11 percent of outstanding loans, and said India’s banking system had still more “unrecognized stress.” The pain has rippled outside the country. Standard Chartered, a British bank, said in February that its India unit lost nearly $1 billion last year. The bank says it is selling problem loans.
Diageo, the British spirits maker, has also been hit, after guaranteeing a $135 million loan last year from Standard Chartered to a company affiliated with Mr. Mallya. Diageo says it is pursuing the matter. The sour loans are raising questions about whether India’s financial system could deal with the sort of debt crisis that hit the United States and Europe in 2008. “We’re coming so late into the too-big-to-fail issue,” said Susan Thomas, assistant professor at the Indira Gandhi Institute for Development Research in Mumbai and a member of the country’s bankruptcy law reform committee. As in China, which is dealing with its own corporate debt hangover, India’s troubles stem from its efforts to spur growth after the 2008 global financial crisis. Regulators loosened fiscal and monetary policies and allowed many industries to restructure loans rather than let them go sour. It also allowed a moratorium on interest payments. Lenders responded, and over the next four years bank lending to nonfinancial companies roughly doubled. But people inside and outside the country increasingly worried about rising defaults and banks’ ability to meet new global financial stability requirements. In September, Raghuram Rajan, India’s top central banker, ordered lenders to provide a full accounting. Mr. Mallya — who in India is often compared to Richard Branson, the British entrepreneur — is one of India’s most famous names. His company, the United Breweries Group, makes Kingfisher beer and sells everything from alcohol to chemicals and fertilizer. He has a personal stake in India’s only Formula One team. He is a regular presence on the party circuit, and made headlines 10 years ago when he held a lavish birthday party at which the singer Lionel Richie was the star performer. “I work hard and I play hard, too,” he once said. “There is nothing wrong with that.”
When the post-2008 lending binge hit, Mr. Mallya saw a chance to help one of his newer businesses: airlines. His Kingfisher Airlines was initially modeled on the low-cost American carrier JetBlue, with an all-economy configuration that included seat-back TVs, unheard of on Indian domestic flights. Mr. Mallya quickly added a lavish business class to Kingfisher. Roomy seats came with champagne glasses filled with cider, since India forbids alcohol on domestic flights. The airline was a pet project of Mr. Mallya’s; he examined the in-flight napkins and interviewed some of the prospective flight attendants himself. But Kingfisher Airlines suffered from an inefficient mix of planes and tough competition, which increased when it started flying internationally. Capitalizing on the looser lending practices, the airline persuaded its lenders to restructure its debt. Two years later, in 2012, Kingfisher stopped flying in the face of high fuel prices and a global slowdown. Kingfisher owed at least $1.4 billion in loans, much of it to state-controlled banks, as well as back pay to former employees and other bills. Because Mr. Mallya and his United Breweries Holdings backed some of the loans, creditors began pressing them for repayment. The dispute began to wind its way through the courts. Banks tried to seize Mr. Mallya’s assets, including his estate in Goa.
Late last year authorities raided Mr. Mallya’s homes and offices in Mumbai, Bangalore and Goa. As his lavish lifestyle came under scrutiny, he began to speak less publicly. “Once a media witch hunt starts it escalates into a raging fire where truth and facts are burnt to ashes,” he said in March on Twitter.