USL stake sale: SC admits pleas, posts hearing in April

By: | Published: November 18, 2015 12:34 AM

Diageo, United Breweries Holdings had filed petitions

The Supreme Court on Tuesday admitted a batch of petitions filed by British group Diageo Plc and United Breweries Holdings in a matter related to the sale of United Spirits (USL). It also posted the matter for hearing in April.

Earlier, the apex court had directed the companies to maintain status quo in the sale of USL. According to sources, the transaction is already complete and the shares already stand transferred to the world’s largest distiller.

The Karnataka High Court on December 20, 2013 had annulled the sale of 6.9% stake (10,141,437 shares) in USL to Diageo by guarantor United Breweries (Holdings) Ltd (UBHL), the holding company of Vijay Mallya’s UB Group.

The HC had asked Diageo to return the purchased shares to UBHL within two weeks on the ground that the lenders have a claim over guarantor’s assets.

UBHL had extended guarantees worth more than R8,000 crore to lenders of troubled group affiliate Kingfisher Airlines. Diageo is currently the largest shareholder in USL with a 26% stake, much lower than the 53.4% it originally sought, while UBHL and other promoter firms own 11.08%.

Diageo had argued that it was an open transaction and had received approvals from RBI, market regulator Sebi and the Competition Commission of India. “It was an open transaction and everyone was aware of it. Diageo completed its takeover in July, almost eight months after the companies announced the deal… The valuation of the shares at R1,440 was also transparent. Even the banks had given the NoC for the deal,” its counsel had said.

Opposing the Diageo stand, the SBI-led consortium says that there was gross undervaluation of the shares. “There were cogent reasons for the HC to pass such order,” senior counsel Shyam Diwan had argued and added that huge amounts have been transferred to foreign tax havens like British Virgin Islands, places in the Netherlands and South Africa.

Diwan stated that around R4,000 crore had been diverted to a British virgin subsidiary of USL, which UBHL had justified as remitted overseas towards the purported acquisition of a Scottish distillery Whyte & Mackay and ostensibly discharging liability to Citibank. Such a diversion is bound to have an indirect impact on UBHL and its creditors, he added.

Creditors also alleged that while Diageo had only paid R1,440 per share, the company had exchanged much more with Vijay Mallya outside the country for the same shares.

Court drama
* The Karnataka HC on December 20, 2013 had annulled the sale of 6.9% stake in USL to Diageo by guarantor United Breweries (Holdings), or UBHL, the holding company of the UB Group. The HC had asked Diageo to return the purchased shares to UBHL within two weeks on the ground that lenders had a claim over guarantor’s assets
* Diageo had argued that it was an open transaction and had received approvals from RBI, market regulator Sebi and the CCI

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