It will be a hectic week for Vijay Mallya starting Monday – September 24th. A series of AGMs are slated during the week, during which he will be up against his shareholders who will be really pushing him for answers on why there is so much flux surrounding almost all of his five major listed companies.
Top of the list, is of course, Kingfisher Airlines, followed by UB Holdings, United Spirits, United Breweries and then Mangalore Chemicals & Fertilizers (MCF). There is intense speculation on all these five companies on how Mallya will steer the UB Group during the next year and it is indeed a herculean task.
During last year’s AGMs, Mallya came out fighting and assuaged his shareholders that he will put the Group back in shape, but the situation has only worsened in Kingfisher Airlines, UB Holdings as well as in United Spirits.
As he faces his shareholders during this time around, he will be pretty much aware that there is an inherent need to capitalise on one of his assets and settle the long standing issue of high-leverage in his three main companies, which is proving to highly unwieldy. While Kingfisher Airlines is under a debt of close to Rs 9,000 crore on a negative networth, United Spirits has a debt of Rs 8,600 crore on a leverage of around two times.
The assets on which he can bank upon are the offloading a part of his United Spirits or in United Breweries or in MCF. Mallya owns 37.5 per cent in United Breweries which has a market capitalisation of close to Rs 17,000 crore, while he owns around 28 per cent in United Spirits which has a capitalisation of Rs 13,000 crore.
While Mallya is indeed engaged in protracted discussions with global major Diageo to offload a stake in United Spirits, it is understood that Diageo is willing to take it up only if they get management control, which Mallya is unlikely to cede at this juncture. While that is the major aspect on which there is intense parleys between the two, Mallya will also have to address the aspect of United Spirits owning Whyte & Mackay, the Scottish scotch major.
“If Diageo gets to acquire a significant stake in United Spirits, they will be up against European Union’s anti-monopoly body, which will most likely oppose to the aspect that Diageo, the global leader in spirits gets to also own Whyte & Mackay, leading to monopoly in the spirits marketplace,” industry analysts indicated. The option is then to spin off W&M or dilute United Spirits’ stake substantially before the Diageo deal goes ahead.
While this indeed is a major ace to settle the gnawing issues, Mallya also has an option to reduce his stake in United Breweries in which global brewing major Heineken has an equal 37.5 per cent stake. Mallya can also look to offload stake in MCF, but which will not be enough to address the main issue of - how he will bring in much needed equity into Kingfisher Airlines. The lenders, who have got around Rs 7,000 crore exposure to Kingfisher Airlines, are pushing Mallya hard to bring in equity and stabilise the operations.
Mallya has over the past two decades has always leveraged heavily in growing the Group, but this time around punching much above his weight is expected to take a toll. However, as D Adikesavalu, one of Mallya’s trusted friends said : “Mallya is fighting like a wounded tiger and we sincerely hope he will come out victorious.”
The next few weeks will decide on how Mallya will solve the tangle.