USL's Rs 1,350-cr loan to UB Holdings under cloud

An advance of a little over Rs 1,350 crore (Rs 13.5 billion) to UB Holdings, the holding company of Vijay Mallya’s UB Group, from United Spirits, which presumably went to Kingfisher Airlines, has come to haunt United Spirits, India’s largest spirits company in which Diageo has strategic management control.

In a disclosure to the markets, United Spirits has said it is awaiting information from UB Holdings for determining the treatment in the company’s accounts of the loan together with applicable interest accrued until March 31, 2014.

As a result of this and a couple of other financial issues, United Spirits has been forced to defer publishing its audited numbers for 2013-14.

UB Holdings is under extreme stress due to the various corporate guarantees it had given to raise debt for the now-grounded Kingfisher Airlines and has been in protracted discussions with a clutch of lenders to buy more time.

The move by United Spirits to review the loan to UB Holdings, comes a couple of weeks after it said it would be forced to provide close to Rs 4,500 crore (Rs 45 billion) for another loan to its London unit.

United Spirits was forced to take that step as proceeds from the sale of its Scottish subsidiary, Whyte & Mackay, will not be enough to meet the sum lent to acquire it in 2007.

As a result, United Spirits had said its net-worth would be culled by Rs 3,500 crore (RS 35 billion).

United Spirits has further added that it is making enquiries for another Rs 600-odd crore lent to certain trade debtors.

“We are making enquiries in relation to the position of certain balances owing to the company from trade debtors (including distributors, contract bottlers and other third parties) aggregating to an amount of up to approximately Rs 590 crore (Rs 5.9 billion) as of March 31, 2014, and consequently its treatment in the company accounts,”

United Spirits said in a statement.

Senior executives of the UB Group told Business Standard that these measures were due to compliance guidelines the London-headquartered Diageo had been putting in place.

Diageo has around 29 per cent stake in United Spirits and is at the fag end of an open offer through which it plans to buy another 26 per cent.

Diageo has invested Rs 6,500 crore (Rs 65 billion) for its 29 per cent stake in United Spirits and is ready with Rs 11,500 crore (Rs 115 billion) for the additional 26 per cent stake.

The United Spirits balance sheet may be integrated into Diageo’s books starting July 1, 2014.

“The UB Group has supported various small bottlers and distributors across India over the past many years with working capital as well as advances.

“But with Diageo at the helm, it is now necessary to validate the financial strength of those small bottlers and distributors.

“These are among the strict compliance standards which Diageo is putting in place,” noted a senior industry analyst.

Under stress

• The move by United Spirits to review the loan to UB Holdings, comes a couple of weeks after it said it would be forced to provide close to Rs 4,500 crore (Rs 45 billion) for another loan to its London unit
• UB Holdings is under extreme stress due to the various corporate guarantees it had given to raise debt for the now-grounded Kingfisher Airlines
• Diageo has around 29 per cent stake in United Spirits and is at the fag end of an open offer through which it plans to buy another 26 per cent