26 Jan 2009, 0203 hrs IST, ET Bureau
BANGALORE / MUMBAI: United Breweries Holdings (UBHL) — the investment vehicle of Vijay Mallya — has given about 81% of its stake in whisky maker United Spirits (USL) as corporate guarantee to help loss-making group firm Kingfisher Airlines raise money for expansion plans. Of around 34% that Mr Mallya owns in USL through UBHL, around 27.8% has been provided as guarantee to lenders such as IDFC, IL&FS, Citigroup and ICICI Bank.
USL, which was in the spotlight last week after a poor performance and a steep fall in stock price, has also pledged about 17.2% of its shares to raise money for the acquisition of Shaw Wallace & Co and the UK-based Whyte & Mackay. Of this, 12.7% comprises treasury stock, which resulted from the merger of McDowell & Co and Herbertsons and is being held in a trust.
Another 4.5% held in USL by its subsidiaries has also been pledged with lenders.
These two moves have helped the beer-to-real estate UB group raise around Rs 6,900 crore to fund USL’s acquisitions. Kingfisher Airlines has also used the corporate guarantee to raise money for its expansion plans and to buy out Deccan Aviation. The pledges and the corporate guarantee comprise about 44% of USL’s fully-diluted equity base after the Shaw Wallace merger.
Speaking to ET, Mr Mallya sought to douse any concerns among investors.
“Even speculation must have some logic. My shares are provided as collateral or top-up securities and lenders will look at it only if the company and Mr Mallya are unable to meet obligations. I have not raised a single rupee in cash by pledging the shares. The loans are all backed by robust assets,” Mr Mallya told ET. The USL shares closed at Rs 478 last week, down from 52-week high of Rs 1,873.
Recent developments in the Indian corporate scene have raised serious concerns among investors over shares of listed companies pledged by promoters with lenders.
Normally, these pledges are done to raise money for investment in other projects of the promoters. Very often, lenders also ask promoters to pledge some of their personal stake when the companies are borrowing a large amount for a big project.
Last year, promoters of three major companies faced huge problems when the stock prices of their companies fell causing lenders to demand more margin money. When the promoters were unable to cough up, lenders dumped the pledged stocks in the market causing the promoter shareholding in the company to drop substantially. This could be dangerous in cases where the promoter shareholding is low and when the company is being coveted by rivals.
K Raghavendra Rao of Orchid Chemicals, Vijay Sheth of Great Offshore and B Ramalinga Raju of Satyam Computer were the promoters who saw a dramatic and substantial fall in their holdings when they could not pay up and lenders dumped the shares in the market.
Market regulator Sebi has recently stepped in to stipulate that promoters will have to periodically disclose the shares pledged by promoters in listed companies to stock exchanges . Sebi wants more transparency by promoters in these matters and is worried that small investors will suffer due to the intense volatility.
Investor concern also revolves around the UB group’s loss-making airline Kingfisher. The company has large accumulated losses and is facing severe competition from other airlines and from cheaper means of transport such as railways.
But Mr Mallya added that Kingfisher Airlines’ monthly losses are down to Rs 5 crore from Rs 75 crore mid-last year. “There is a lot of potential investor interest in the airline company,” Mr Mallya said, while explaining that he could unlock $100 million by trading in aircraft delivery slots if needed. India’s largest airline by market share, Kingfisher has been in the market to raise around $400 million. Kingfisher Airlines, with a 52-week high of Rs 206.70, ended at Rs 30.80 on Friday.
The shares pledged by USL have been done on certain financial covenants — like USL’s performance guarantees such as debt to EBITDA ratio — with the lenders. It will not trigger margin call pressures in a falling market unless there is a breach of any significant financial covenant.
Last week, USL shares plummeted more than 32% after the company’s third-quarter net reported 66% drop taking the street by surprise. UB group CFO Ravi Nedungadi says that USL is performing well within the parameters stipulated by lenders.
USL also has the comfort of Rs 3,135-crore bulk scotch inventory and a brand arsenal to support the Rs 6,900-crore loan, which include Rs 850-crore working loan.
Mr Mallya added: “Since acquisition, Whyte & Mackay’s bulk scotch inventory valuation has risen 49% to touch £457 million in the December quarter. USL’s brands together have seen increase of 10 million cases in volume sales during the first nine months, which is a record.”
USL has no significant loan repayment this fiscal. The company needs to throw up Rs 582 crore towards W&M (Rs 452 crore) and Shaw Wallace (Rs 109 crore) buyouts in the next fiscal, and Rs 1,415 crore during FY11.
Mr Mallya has been in discussion with global drinks giant Diageo and Pernod Ricard for selling USL treasury stocks at a significant premium. There is also a deleveraging option through divestment of 49% stake in Glasgow-based Whyte & Mackay, which may no be required immediately if USL shares could be placed with stratgic investor.
Via:E.T
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