Why Does Vijay Mallya Want To Retire Now?

Liquor baron Vijay Mallya's statements regarding his intention to retire at the latest annual general meeting of the Diageo-controlled United Spirits Ltd, soon after State Bank of India (SBI) allegedly declared him and two of his companies as wilful defaulters, is seen as a precursor to his final exit from the country's largest liquor company that he built over the last several decades, over mounting issues with the new owner.

According to two people familiar with the recent developments in United Spirits, a likely intervention from the Securities Exchange Board of India (SEBI) sought by the company regarding certain doubtful transactions in its books and a few third-party agreements such as product promotions and event sponsorships is another trigger for this sudden exit plan.

The company has been reviewing these deals for which the approvals were turned down by the shareholders earlier.

United Spirits had also raised its concerns about Mallya's wilful defaulter tag as it would impact the company's fund raising plans in a statement released along with its September quarter results referring to a similar move by United Bank of India last year.

Mallya had told media on the sidelines of the United Spirits' 16th annual general meeting held on 24 November in Bangalore that he "wanted to retire and enjoy life" when he turns 60 (next month).

"A wilful defaulter tag and an adverse decision from SEBI on the said shareholders' discontent would anyway add ammunition to an already aggrieved United Spirits to fire him," said one of the two people quoted earlier.

United Spirits, majority owned by the world's largest spirit maker Diageo at present, had early this year asked Mallya to step down as chairman following its findings of these "inappropriate" transactions, mainly related to loans given to other UB group companies including the grounded Kingfisher Airline.

But, Mallya, who continued to be the chairman of the company for the last several years and even after Diageo took over the control a year ago, did not budge saying he cannot be expelled from the position by Diageo as there are contractual obligations on the part of the UK-based drinks major to support him as the head of the board.

"The company (USL) and its parent haven't changed their position on VJM's step down as chairman," said an executive from United Spirits, seeking anonymity.

State Bank of India, the key lender and the lead of a consortium of 14 other lenders to the 2012- grounded Kingfisher Airlines, last week sent a letter to Mallya intimating its decision to declare him, Kingfisher Airlines and UB Holdings Ltd (the holding company and the main investment vehicle for Mallya's UB group companies) as wilful defaulters.

Kingfisher Airlines defaulted loans aggregating to Rs 7,000 crore provided by these banks. Among these, State Bank of India has the largest exposure at Rs 1,600 crore.

The bankers' consortium, which expects to recover a portion of the defaulted loan by securitising the assets of the grounded airline, including its headquarters building - Kingfisher House - in Mumbai, airplanes, helicopters, ground handling equipment and vehicles, has already securitised some of them.

While the headquarters building was taken over by the lenders in 2013, they had auctioned some of the other assets including aeroplanes and airport vehicles in the later rounds of recovery.

Pressure From Banks
According to banking sources, SBI will soon send the names of the wilful defaulters to Reserve Bank of India and credit information agencies. In such case, Mallya and the other two entities will be banned from raising any funds for at least the next five years. It may have negative impacts on companies in which Mallya is a director or at the leadership.

While SBI is moving to declare Mallya as wilful defaulter, another lender Yes Bank on Friday (27 November) invoked Mallya's 3.02 per cent United Breweries stake valued at Rs 770 crore, which was pledged with the bank, as part of the recovery of the defaulted Kingfisher Airlines loan.

Kingfisher Airlines, promoted by Mallya along with a few other UB Group companies in 2003, was grounded after nine years due to mounting losses. The company, which defaulted loans and salaries and payments to vendors, finally lost its flying license in 2012.

Mallya had in September promised the lenders that he will be able to resolve the issue related to the defaulted loan within the current financial year. The liquor industry veteran, who along with his family and other group companies also own about 33 per cent stake in the country's largest beer maker United Breweries Ltd, had also recently negotiated with the lenders to waive off the interest part and allow him to pay the principal amount, according to a banker.

"But, the proposal was apparently turned down by the lenders," said the banker, who doesn't want to be identified.

Meanwhile, according to a merchant banker, Mallya was in talks to sell his 4 per cent stake left in United Spirits to Diageo to settle part of the defaulted loans of Kingfisher Airlines.

The market value of United Spirits, as per the share price on Friday (27 November) was Rs 25,774.21 crore.

But, United Spirits in which Diageo hold 55 per cent stake at present, had clarified that it is not aware of this development.

"We are not aware of any such talks. While, Diageo is considering its contractual position regarding Vijay Mallya...," clarified United Spirits in response to a query from stock exchanges early this month.

The Indian liquor major, which had recently appointed Diageo's Asia Pacific and Africa head, Nicholas Bodo Blazaquz, as its vice chairman, is currently awaiting the parent's final decision on the term of the current chairman, said another person familiar with the recent developments at United Spirits.

Mallya has one more year to be completed in his current two-year term as chairman of United Spirits.