UB may use Diageo deal funds to reduce KFA debt

Written by feBureau | Bangalore/ New Delhi | Updated: Feb 16 2013, 07:44am hrs
The United Breweries Group, parent of the grounded Kingfisher Airlines, said on Friday that it has not received any formal communication from the lenders of the airline regarding recovery proceedings of their outstanding loans. We have received no formal communication from the banks till date, the UB Group said. We are in continuing discussions with them on ways to bring down their exposure, among other things, from the proceeds of the Diageo transaction.

The UB group also added that the banks support the Diageo deal and would work with us in finding an orderly method of disposal of some of the pledged shares to Diageo, if appropriate.

The statement comes after pressure from the lenders increased in recent days. The lenders expect recovering upto R1,000 crore by monetising securities in the March quarter itself. Selling securities given as collaterals is the plan, Shyamal Acharya, State Bank of India deputy managing director (mid-corporate accounts), said in Mumbai.

SBI chairman Pratip Chaudhuri had said at the same event that sale of shares of companies controlled by UB Group and held as collateral can help recover as much as R1,000 crore.

In November, the UB group and London-based Diageo agreed to a deal wherein the London-based liquor maker will acquire 53.4% stake in United Spirits for R11,166.5 crore. Of this, R2,400 crore would go to the United Breweries Holdingss balance sheet. Also, R3,300 crore will go to United Spirits but would be used to pare the companys debt.

At the time of the deal, group chairman Vijay Mallya said the sale of stake in United Spirits was not linked to the crisis at Kingfisher Airlines. We will also address the needs of Kingfisher Airlines but these will be done separately for the good of the company and its stakeholders, Mallya had said.

Diageos proposed open offer to the public shareholders of USL has been cleared by Securities and Exchange Board of India (Sebi) and is awaiting approval from the Competition Commission of India.

The company has said that it would submit some additional documentation required by the CCI by February 18, after which its application would be processed, said a CCI official.

The lenders, however, may not find the open offer attractive with its offer price at R1,440 per share, while the USL stock closed at R1,901.70 on Friday. The open offer may not suit us because the open offer rate would be the same rate at which they have entered into a deal with Diageo, Acharya said, when asked if the lenders would consider the open offer route.

As of September 31, Kingfisher owes R8,630 crore to lenders. The sum includes the lenders R7,000-crore odd exposure as well as the outstanding interest. The airline has been grounded since October 1 and its scheduled operators permit has expired.

During the quarter ended December 31, the airline did not report any net sales and had a net loss of R755 crore, widening from R440 crore in the same quarter last year.

The lenders have shares of listed entities like United Spirits as collateral, which could result in recovery of R500 crore apart from rights over brand Kingfisher Airlines as security. The consortium also has residual rights over the securities held by Srei Infrastructure Finance, which totals R500 crore. Srei Infrastructure Finance bought this from ICICI Bank in April.

SBI has the maximum exposure, over R1,600 crore, followed by PNB with R800 crore, IDBI at R800 crore, Bank of India at R650 crore and Bank of Baroda has R550 crore.