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Corporate Mar 6, 2013

After luxury toys, will Mallya lose precious Diageo deal too?

By Firstbiz Staff

Even as UB Group chairman Vijay Mallya claims funds transfer from United Spirits to Kingfisher Airlines was on track, bankers to his debt-laden airline have played spoilsport to the deal.

Despite getting most of the clearances for the proposed takeover of United Spirits by British liquor giant Diageo, Mallya may yet receive another blow as its top lenders, PSU banks, seem to have lost faith in the Kingfisher chief and are talking of selling United Spirits shares pledged with them as collateral.

According to a report in the Economic Times, lenders are open to selling the shares for the best price. It could either in the market or at a higher price to outsiders. Getting their money back is the number one priority and since Mallya has failed to come up with a viable revival plan for his dying airline, it is likely that the lenders will sell shares as a last resort option.

"If the lenders don't release the 2% stake for sale to Diageo, Mallya and the UB Group will be forced to find extra shares in order to complete the deal. In normal circumstances that shouldn't be difficult, but in this case nearly 98% of the promoter stake of 27.5% in USL is pledged," said the ET report.

Shares of United Spirits were down 0.66 percent this morning at Rs 1844, while the Sensex was up around 0.54 percent at 19245.

Already Kingfisher's parent company, United Breweries Holdings , is in the eye of a storm with its auditors raising concerns over its significant financial exposure of Rs 13,500 crore to Kingfisher.



Last month, lenders started the process to recover dues of over Rs 7,500 crore. Being the Chiarman of UP Group, Mallya as pledged his precious assets, including the Kingfisher Villa in Goa, Kingfisher House in Mumbai and the Kingfisher brand.

According to a report in the Business Standard, Mallya's biggest 'showpiece collection', the Indian Empress - a 95-metre mega-yacht bought from the Qatari Sheikh in 2006- was sold by Mallya in 2011. Moreover, the several islands that were reported to have been snapped up by Malya for around Rs 750 crore has been denied by the company. Even his private aircraft Boeing 727 and Gulfstream have been sold, with Mallya only flying a leased Airbus 319 CJ and a Hawker 700 owned by Shaw Wallace, in which Mallya holds 54 percent.

What's worse is the brand value of Kingfisher is now down to zero from Rs 2,500 crore two years ago.

The beleaguered airline has dues towards payment of service tax, income tax, as also Provident Fund of employees and dues of the oil companies. Besides, it has to pay huge amounts to the lessors of its aircraft and service providers like the Airports Authority of India.

Kingfisher, which has over Rs 15,000 crore in the form of debt, accumulated losses and various dues, has remained grounded since October 1 last year and its flying licence, suspended that month, expired on December 31.

Meanwhile,the government will make it easier for leasing and financial firms to take back planes used by Kingfisher. Civil aviation ministry officials on Monday said a decision had been taken to make the process of repossessing aircraft by leasing firms easier.

Director-general of civil aviation Arun Mishra said he hoped for an amicable solution of the issue between Kingfisher and the lessors. Earlier this year, US-based International Lease Finance Corp had sent a team to repossess planes from Kingfisher over unpaid bills. The planes remained stranded because of administrative hurdles.

Germany's DVB Bank SE has also sued Kingfisher and the DGCA seeking deregistration of two aircraft funded by it and the permission to fly them out of India.

by Firstbiz Staff

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