Even as United Spirits (USL) seeks shareholders’ approval this week on agreements with related parties, proxy advisory firms appear to be sceptical about some of the liquor company’s existing agreements with entities linked to Vijay Mallya’s UB Group.
At its extra-ordinary general meeting slated for November 28, USL is seeking the shareholders’ nod for a total of 11 related-party transactions to comply with a recent Sebi circular that requires companies to place existing material related party contracts or arrangements, which are likely to continue into FY16, before the shareholders for approval. Transactions with a related party are considered ‘material’ if they exceed 10% of the annual consolidated turnover of a company. Of these, 10 such existing agreements are with various entities connected to Mallya.
Proxy advisory firm Institutional Investor Advisory Services India (IiAS) has recommended that shareholders vote against five of these agreements, questioning the timing and nature of some of the transactions. It has recommended voting for two of these and termed the rest as operational in nature.
One of them pertains to a Trademark Licence Agreement with Mallya’s holding company United Breweries Holdings which entails a total licence fee of Rs 250 crore paid upfront and a total of Rs 263 crore payable over the entire term which ends on June 29, 2023. The company’s board of directors had approved entering into this transaction on October 11, 2012 and the agreement was executed on June 29, 2013, a few days before British drinks company Diageo completed a stake purchase in United Spirits.