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Vijay Mallya runs the risk of being declared a wilful defaulter by banks, but the businessman is as calm as ever, blaming the media and overenthusiastic bankers for the bad press he has got.
Even if public opinion has built up strongly against him as he passes through the most trying phase of his business life, Mallya, 58, shows no sign of anxiety.
"We shall pursue all available legal remedies. I have great faith in the judicial system of our country and I shall certainly pursue the legal remedies that are available to me," Mallya told journalists on the sidelines of the annual general meeting of the United Breweries shareholders last week.
But it is a situation which India Inc. is watching closely: how will Mallya get over this crisis? Will it finally take its toll on the man who has always - during the past three decades at the helm of his UB Group - punched way above his weight and has pulled it through?
Most important, this will show how the whole campaign against wilful defaulters plays out.
Mallya's challenge this time is not about leveraging his assets to the hilt or finalising a complex cross-border deal in the lush surroundings of Scotland - it is about facing up to the consequences of being labelled a wilful defaulter by the Reserve Bank of India. Kolkata-based state-owned United Bank of India has been the first among the 15-odd banks - most of them state-owned - which have moved to label Mallya a wilful defaulter.
IDBI Bank and Punjab National Bank too are known to be moving fast on the matter.
State Bank of India, which leads the consortium of banks, has ordered a special audit of the matter. If that too goes against Mallya, it could become an uphill journey for him.
Payback time
Never one to give up without a fight, Mallya has said he will contest the default tag in the courts. He has denied all allegations made against him by United Bank of India and has alleged that he wasn't given sufficient time before the grievance redress committee of the banks. And Mallya has filed a plea against the move in the Kolkata High Court and the Delhi High Court.
What are the consequences for Mallya if he is declared a wilful defaulter by the Reserve Bank of India?
For sure, it will spoil Mallya's personal credit rating. Legal experts say that Kingfisher Airlines too would not be eligible for bank credit as long as Mallya remains on its board of directors.
However, if Mallya stepped down from the board, the banks would be free to lend to the company again.
But what about the other companies with Mallya on their boards?
Experts say that strictly speaking, the banks cannot deny credit to these companies simply because Mallya is on their board, but they admit there will be some unease because of it.
The unsaid part is that it could lead to Mallya's ouster from boards of other companies like United Spirits, United Breweries, UB Holdings and Mangalore Chemicals & Fertilisers.
"The wilful defaulter tag ensures that the director and that specific company will not get any further credit, but it technically will not stop the banks to lend to other companies where that person is on the board.
But the banks will be pretty wary doing further business with such companies," Dina Wadia, partner at law firm J Sagar & Associates, says.
The issue of debt owed to the consortium of banks has been snapping at Mallya's heels for nearly two years now, but somehow Mallya has been putting legal obstacles in the way of the banks' efforts to recover as much as possible of the Rs 7,000 crore (Rs 70 billion) they had lent to UB Group's now grounded airline.
At last count, the consortium of banks were involved in as many as 22 such cases against Mallya.
However, if the other banks also move fast to put the wilful defaulter tag on Mallya, the situation would become pretty difficult for Mallya to deal with and it would lead to a cascading effect on UB Group.
Mallya along with Kingfisher Airlines already has the inglorious distinction of being the top defaulter in the country, and the recent statement by RBI Governor Raghuram Rajan that strict action should be taken against defaulters is a growing concern for Mallya.
The stakes are pretty high for the banks. Though Diageo's second open offer, at Rs 3,030 apiece, was at a substantial premium to the then prevailing price of United Spirits, Rs 2,650, and therefore gave a good opportunity for the banks to liquidate some of the shares pledged with them by Mallya, the principal outstanding is still a good Rs 4,000 crore (Rs 40 billion), not counting the interest costs.
A long-standing problem
For Mallya's business associates too, the wilful defaulter's tag could have consequences.
The global strategic investors in Mallya's group - Diageo has a 54 per cent stake in United Spirits, while Heineken has a 39 per cent stake in United Breweries - are understood to have moved swiftly on the issue. Diageo has managed to extract some sort of commitment from Mallya to safeguard its interests and to ensure the operations of the company will continue unhindered in such an eventuality.
"One should read between the lines of such a statement," says a senior UB Group official. "Diageo has managed to insulate its huge Rs 18,500 crore (Rs 185 billion) investment in United Spirits by extracting an assurance from Mallya that his troubles over Kingfisher Airlines will not come as an impediment to the company." It is just a matter of time before Heineken too moves on such a statement.
The kind of wide-ranging disclosures that the Diageo-led United Spirits board has made after publishing last year's earnings is a case in point.
In what could come as more embarrassment for Mallya, the newly-constituted board of United Spirits has ordered an expansive inquiry into the loans given to UB companies and their associates after the company reported a net loss of Rs 4,488 crore (Rs 44.88 billion) for 2013-14, mainly due to a provisioning of Rs 1,123 crore (Rs 11.23 billion) for bad loans and a one-time exceptional expense of Rs 3,235 crore (Rs 32.35 billion) on sale of Scottish subsidiary Whyte & Mackay.
At 18 pages, the disclosures have gone into minute details of the various issues which the company has been put through at the cost of UB Group and how the same can be straightened up.
"It is not going to be an easy task for United Spirits to get back as much as Rs 2,000 crore (Rs 20 billion which it had lent to UB Group as well as to its various associates (see table). UB Holdings has already written off Rs 1,400 crore (Rs 14 billion) as part of its support to Kingfisher Airlines and it is expected to have repercussions for United Spirits as well," a senior industry analyst notes.
With the crisis brewing everywhere, Mallya's troubles could spread.
Photograph: Parivartan Sharma/Reuters
