Mallya lands a property deal in addition to Rs.515 crore from Diageo for leaving USL
Vijay Mallya
The United Spirits Ltd. (USL) deal with Diageo has really raised the flagging spirits of Vijay Mallya. For stepping down as Chairman of USL, Mallya has not only bagged $75 million (Rs.515 crore) but also a soothing property deal. The deal allows Mallya or his nominee to purchase 13 residential, non-core properties of India’s biggest spirit maker located across various parts of the country. Further, as disclosed on an analyst call, the former Chairman of USL will get a 10 per cent discount on three of the key USL properties in Goa, Delhi and Mumbai respectively.
The deal has raised eyebrows in certain corners especially amongst shareholders with an official stating that the agreement may also be scrutinised by SEBI. Besides the regulator, the Ministry of Corporate Affairs and other agencies will also scrutinise the deal for matters such as insider trading and corporate governance violations.
Anil Singhvi of Institutional Investor Advisory Services (IIAS) says that, “Diageo has been absolutely spineless in handling this entire deal. Despite evidence clearly showing that Mallya violated several laws, Diageo chose to smoke the peace pipe for the good of USL. Who is Diageo to decide that?”
Believing that minority shareholders must be compensated from the settlement deal with Mallya, Singhvi questioned further, “Diageo has to be taken to task for not taking care of the minority shareholders in USL who form 50 per cent. The Indian board of USL has a fiduciary duty to be responsible for Diageo’s actions. How can they fritter away company assets by offering discounts to Mallya as if they are obliged to him for stepping down? These are USL properties.”
Raising questions over the settlement, Singhvi argues the need for a settlement deal for a man termed wilful defaulter by State Bank of India and Punjab National Bank over unpaid dues by his now defunct Kingfisher Airlines. Singhvi opines, “Mallya would have had to step down anyway once the banks called him a wilful defaulter. When have we last heard of a case in India where the promoter flouts all rules and he is paid compensation for stepping down as chairman?”
Considering the settlement deal is to be paid in UK, despite some banks valiant efforts it will be difficult to recover money from him.
Feeling that the property deal will allow USL to get done with few of its liabilities, Abneesh Roy, associate director at Edelweiss Capital, a brokerage says, “The properties were valued at Rs 290 crore two years ago and it must have appreciated, USL can divest these as well and get rid of some contingent liabilities.”
The company states that properties for purchase would be priced at fair market value with a 10 per cent discount applying to three of them, as assessed by reputed independent valuers appointed by them. In addition, despite the stepping down of Mallya, the company will continue its efforts to recover loans amounting to Rs.1339 crore ($195 million) from former group company United Breweries Holdings Ltd, reported Reuters.
Despite the widely believed perceptions that Diageo being too generous, it is felt that the company might have not had much choice in the matter. Before taking control over the stake in United Spirits, Diageo should have scrutinised the various shady financial deals as part of its due diligence.
One official on the basis of anonymity mentioned, “Mallya had also pointed out that he made full disclosures to Diageo, hence the company was dilly-dallying on taking a clear stand. Finally, the tough stance taken by USL’s independent directors led to the ouster of Mallya. . “The new Companies Act holds independent directors highly accountable, they can go to jail if the facts are not pointed out and taken up by the audit committee. It is not just a stakeholder issue,” he further added.
An executive said, that while Mallya wished to leave with an unblemished image, he wasn’t afforded that option. “The fact that he was called a wilful defaulter by banks and accused of diversion of funds to associate companies did not put him in the relaxed, confident space that promoters who sell out once they get a good deal generally enjoy.”
A statement released by Mallya on Thursday said, “I am pleased to have been able to agree terms with Diageo and USL. The agreement we have reached secures my family legacy. The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo and USL.”
Expressing caution, experts still feel that the defaulter tag could be trouble for Mallya in his other joint ventures with Heineken such as United Breweries Ltd (UBL) where he is the Chairman. One UBL executive says, “This could snowball into an issue with other companies too where Mallya is associated. If the banks say they will not lend to United Breweries, then it would create issues for Mallya as chairman of the board. As of today, he has not done anything that will challenge his board position here.”
