Mallya faces tough week ahead

It will be a hectic week for Vijay Mallya starting Monday. A series of AGMs (annual general meetings) are slated for the week, during which Mallya will be up against shareholders pressing him for answers as to why there is such a flux surrounding almost all his five major listed companies.

Top of the list is, of course, Kingfisher Airlines, followed by UB Holdings, United Spirits, United Breweries and then Mangalore Chemicals & Fertilizers (MCF). There is intense speculation on how Mallya will steer the UB Group over the next 12 months, a Herculean task indeed.

During last year's AGMs, Mallya came out fighting and assured shareholders he would put the group back in shape. But the situation has only worsened in Kingfisher Airlines, UB Holdings and United Spirits.

As he faces the companies' shareholders this time, he will be aware there is an inherent need to capitalise on one of his assets and settle the long-standing issue of high leverage in his three main companies. While Kingfisher Airlines is under debt of close to Rs 9,000 crore (Rs 90 billion) on a negative net worth, United Spirits has a debt of Rs 8,600 crore (Rs 86 billion) on a leverage of around two times.

What Mallya can bank on are offloading a part of United Spirits, United Breweries or  MCF. Mallya owns 37.5 per cent in United Breweries which has a market capitalisation of close to Rs 17,000 crore (Rs 170 billion), while he owns around 28 per cent in United Spirits, which has a capitalisation of Rs 13,000 crore (Rs 130 billion).

While Mallya is engaged in protracted discussions with global major Diageo to offload a stake in United Spirits, it is understood that Diageo is willing to play ball only if it gets management control. Mallya is unlikely to accept that at this juncture. Mallya will also have to address the aspect of United Spirits owning Whyte & Mackay, the Scottish whisky major. "If Diageo gets to acquire a significant stake in United Spirits, it will be up against the European Union's anti-monopoly body, which will most likely oppose the global leader in spirits getting to own Whyte & Mackay and creating a monopoly in the spirits markets," industry analysts indicated. The option is then to spin off Whyte & Mackay or dilute United Spirits' stake substantially before the Diageo deal goes ahead.

Mallya also has the option to reduce his stake in United Breweries, in which global brewing major Heineken has an equal 37.5 per cent stake. Mallya can also look to offload stake in MCF but that will not be enough to address the main issue of how he would bring in the much-needed equity into Kingfisher Airlines. The lenders, who have got Rs 7,000-crore (Rs 70 billion) exposure to Kingfisher Airlines, are pushing Mallya hard to bring in equity and stabilise operations.

Mallya has, over the past two decades, always leveraged heavily. D Adikesavalu, one of Mallya's trusted friends, said, "Mallya is fighting like a wounded tiger and we sincerely hope he will come out victorious."

The next few weeks will decide if Mallya can get out of the tight spot he finds himself in.