UB Group chairman Vijay Mallya may have to bite the bullet and sell stake in cash-cow United Spirits Ltd (USL) to save Kingfisher Airlines.
Looking to pick a stake in Mallya’s crown jewel is UK-based Diageo plc. Mallya and the group’s holding company, UB Holding, own 28 per cent in United Spirits.
Sources close to the group say Mallya is vehemently opposed to the airline being dragged to the BIFR (Board for Industrial and Financial Reconstruction) as it is too important a group company to be termed sick. Once it becomes a BIFR case, Mallya will, however, not be harassed by lenders as the loans will get restructured. But the Board also has the powers to close down the company or put it up for sale to recover dues of lenders.
One of his companies, Mangalore Chemicals and Fertiliser (MCF), a BIFR case some years ago, soon got back on rails, following the efforts of its then managing director, Darius Mehta. MCF is now being considered a possible candidate for sale to revive the airline’s fortunes.
A few years ago, Diageo, which owns brands such as Johnnie Walker whiskey and Smirnoff vodka, had offered to buy a stake in United Spirits at about Rs 850 a share (latest share price: Rs 938.55), when Mallya and UB Holdings held about 51 per cent stake in the company.
Diageo, it is learnt, wants management control in United Spirits, which Mallya is opposed to. But analysts tracking the company say Mallya has little chance of reviving his airline if he doesn’t sell stake in his crown jewel. If the group sells a substantial stake in USL, it could at a later stage trigger an open offer, thereby reducing the UB Group to a minority shareholder. But Diageo’s entry would obviously lead to the British company bagging crucial board slots.
If this happens, the UB group may have to vacate the posts of managing director and CFO which, again, Mallya is opposed to. Hectic negotiations are on between Diageo and USL honchos to work out a solution acceptable to both companies. One of the concessions Diageo is willing to make is to let Mallya remain chairman for life.
Meanwhile, the situation in the airline has worsened to a level where pilots and other employees have not been paid salaries for the past seven months.
The Centre for Asia Pacific Aviation, in its latest report on ‘Analysis of Indian carriers Q1-FY13 performance’, states that without an investment of about $600 million in the next 30-60 days, and access to a further $400 million over the next 12-18 months to fully fund its business plan, the airline faces an operational shutdown, possibly temporary, to allow it to restructure and re-organise.
The airline was earlier hoping the Government would change the foreign direct investment policy and allow foreign airlines to acquire a stake in Kingfisher.
In March, Mallya told pilots that at least one international airline and two non-airline investors were keen to invest in the airline. He claimed that the Government’s FDI rules did not allow the investments to materialise.
While phone calls to UB Group president A.K.N.R. Nedungadi remained unanswered, sources said the decision to sell stake in United Spirits will depend on how desperate Mallya is to keep the airline afloat.