Steps down as MCF chairman, govt rejects KFA plea for his reappointment as airline’s MD
Troubles are compounding thick and fast for the beleaguered UB Group’s chairman Vijay Mallya, who stepped down as chairman of Mangalore Chemicals and Fertilizers (MCF) on Monday and might have to step down as managing director of the group’s defunct airline Kingfisher Airlines soon.
On Monday morning, MCF said in a filing to the bourses that Mallya was resigning from the board of the company, which is in the middle of a protracted takeover battle, “with immediate effect.” The company didn’t cite any reason for Mallya’s decision to step down.
On the same day, Kingfisher Airlines informed the bourses that the ministry of corporate affairs had rejected its application seeking approval to reappoint Mallya as managing director of the company for a period of five years, albeit the reappointment was proposed without any remuneration payable to Mallya.
The MCA’s refusal to allow Mallya to continue as Kingfisher Airlines’ managing director and his stepping down as MCF chairman may be linked to the action initiated by the airline’s lenders to classify Mallya as a wilful defaulter — a move against which Mallya has obtained a stay from the Calcutta High Court.
UCO Bank had declared the UB Group chairman as a wilful defaulter while other lenders like State Bank of India and Punjab National Bank have issued showcause notices asking why they shouldn’t follow UCO Bank’s lead.
“RBI governor Raghuram Rajan has set the tone when he said that wilful defaulters will no longer be tolerated in the system. Banks have to put pressure on a company with a wilful defaulter on the board,” said Shriram Subramanian, founder and managing director of InGovern Research Services, an independent proxy advisory and corporate governance research firm.
“He’s fighting different battles and the funding is drying up,” said a person who has been closely involved with the UB Group. He declined to be identified.
While the group’s parent company United Breweries Holdings is contesting several winding-up petitions in the Karnataka High Court, lenders have been selling pledged shares, which has dwindled Mallya’s shareholding in key companies.
Kingfisher Airlines, once India’s second largest, was saddled with a net debt of Rs 9,118 crore as on September 30, and hasn’t been in a financial position to even pay employees’ salaries. The carrier has been grounded since October 2012, after posting huge losses over several quarters. It has never posted an annual profit since it took off in 2005.
Lenders have still not been able to recover a large part of their dues from Kingfisher Airlines despite attaching properties, such as its headquarters in Mumbai’s Vile Parle area and Mallya’s villa in Goa. Mallya’s past attempts to raise equity by selling a stake in the carrier have also failed to materialise.
Had Mallya continued as MCF chairman and the wilful defaulter tag stuck to him, it would have been difficult for the company, which is in sound financial health, to raise debt from lenders, as per regulations.
Mallya’s ally and friend, Kolkata-based businessman Saroj Poddar, and his company Zuari Agro Chemicals might play a larger role in MCF’s management in Mallya’s absence, and fill the position left vacant by him on the fertiliser manufacturer’s board.
Mallya and Poddar are pitted against Pune-based Deepak Fertilisers Petrochemicals Corp in a takeover battle for MCF. Upon the conclusion of their respective open offers last month, Deepak Fertilisers has a 32% stake in the company and Mallya and Poddar jointly own 38%. Mallya and Poddar have been able to retain control of MCF for the time being.
The fertiliser company was the only remaining big entity of the UB Group in which Mallya held a majority stake following Diageo’s acquisition of United Spirits (USL) in 2013. The British liquor firm controls 54.78% of USL while Dutch brewer Heineken has marginally increased its stake in UBL by buying up Mallya’s pledged shares sold by lenders.
But investors appear to have lost faith in the promoters of firms like USL as well.
On November 28, shareholders of USL voted against the majority of the special resolutions moved by the company — pertaining to related party transactions — at its extraordinary general meeting (EGM) in Bangalore. As many as nine of the 12 special resolutions were defeated during a ballot.
In a note issued on November 24, ahead of USL’s AGM, proxy advsiory firm Institutional Investor Advisory Services (IIAS) stated that: “Several of these transactions showcase the audacity of the management in taking minority shareholders for granted. Not only is the timing of some of these transactions questionable, but the nature of the transactions too.”
Meanwhile, the country’s two main stock exchanges, BSE and NSE, have suspended the trading of Kingfisher Airlines’ shares on their platform from Monday, for failing to comply with rules on reporting financial results.
The airline’s stock was trading at Rs 1.34 apiece on November 28, its last trading day.
Kingfisher Airlines got listed on the BSE and NSE on June 12, 2006. The airline’s stock traded its highest on BSE on December 19, 2007, at Rs 335 per share.