MUMBAI: Lenders to
Kingfisher AirlinesBSE 2.60 % have indicated they may sell United SpiritsBSE
0.31 % (USL) shares pledged with them as collateral either in the market or at
a higher price to outsiders, dealing a serious, but not fatal, blow to the
proposed takeover of USL by British liquor giant Diageo.
Top lenders from
PSU banks told ET that they have lost faith in Vijay Mallya, and don't believe
he is going to revive the airline. "We are open to selling the shares to
anyone who gives us the best price," a senior official with one of the PSU
banks said. "It should be a transparent deal," he added. Two per cent
of United Spirits shares were given as collateral to the State Bank of
India-led consortium a few years ago when Kingfisher Airlines borrowed money to
continue operations. The lenders want their money back, but Mallya has been
unable to come up with a satisfactory revival plan for the airline. It is
common for lenders to take shares of group companies as collateral. When the
loan becomes bad, they have the option of selling the shares in the market to
recover their money.
"'Legally,
the lenders can sell the shares if there is a default by the borrower,"
says Rohit Berry, an investment banker at BMR Advisors, an audit and consulting
firm. "If there is no other way, that will be the last resort."
The lenders'
stance now poses an unexpected complication for Diageo and Mallya, who have
received most of the clearances for the transaction and are on the verge of
launching the open offer. If the lenders don't release the 2% stake for sale to
Diageo, Mallya and the UB Group will be forced to find extra shares in order to
complete the deal. In normal circumstances that shouldn't be difficult, but in
this case nearly 98% of the promoter stake of 27.5% in USL is pledged.
Diageo may also
not find it easy to buy the extra shares in the market without pushing up its
cost of acquisition. The Indian market regulator's takeover rules allow an
acquirer to buy shares of the target company after announcement of the open
offer on the condition that it offers the same price to all shareholders.
Diageo can buy the remaining 2% in the market, but will have to pay a higher
price and revise the open offer price. The preferential allotment at Rs 1,440
per share, which has already been approved by the board and the shareholders,
will also have to be revised.
The SBI-led
consortium holds 2% of USL shares as collateral for loans given to the bankrupt
Kingfisher Airlines. The shares are a part of the promoter holding of USL,
which Mallya agreed to transfer to Diageo last November. Diageo and the UB
Group struck a deal under which the British drinks giant will buy 19.3% from
the promoter group companies of USL and treasury stock and make a preferential
offer for another 10%.
People close to
the situation say there is little danger of the deal collapsing as the UB Group
will find a way to persuade the banks to release the collateral. The banks want
assurance that their money will be repaid. The official declined to talk about
how they will proceed with the sale if the situation worsens. Technically, it
is difficult for a third party or a hostile bid to emerge in this situation.
Few investors would want to take on both Diageo and Mallya and a 2% stake is
too insignificant to make a difference. Also, the deal can be consummated if
Mallya and the UB Group replace the shares with the lenders with shares
released through revocation of other pledges. http://economictimes.indiatimes.com/news/news-by-industry/transportation/airlines-/-aviation/kfa-lenders-may-sell-usls-pledged-shares-which-may-complicate-diageo-deal/articleshow/18822410.cms
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