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| Govt defers decision on UB's proposal to raise Rs 708 cr |
| Press Trust Of India / New Delhi Jul 02, 2009, 01:43 IST |
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The government has deferred its decision on UB Group’s proposal for raising Rs 708 crore by issuing convertible warrants to FirStart Inc, on the recommendation of Foreign Investment Promotion Board (FIPB).
According to highly placed sources, FIPB had deferred decision on the proposal at its meeting on June 19, saying the Department of Revenue (DoR) had not supported it and DIPP was still examining it.
A source said: “While DoR did not support the proposal, the Department of Industrial Policy and Promotion (DIPP) requested for deferment saying that it is still examining it. Hence, FIPB deferred its decision on the proposal.”
The Vijay Mallya-promoted United Breweries Holdings Ltd (UBHL) had sought a post-facto approval from FIPB for issuing 63.87 lakh convertible warrants of Rs 1,110 each to FirStart. Sources said DoR did not support the proposal on various grounds, including that FirStart has already raised Rs 600 crore as loan.
However, it had paid UBHL only Rs 267.82 crore as upfront money and for converting 19.71 lakh warrants into shares, and has Rs 332.28 crore left with it.
Then, DoR was informed that FirStart cannot raise money and will forfeit the 10 per cent amount paid relating to the balance 44.15 lakh warrants. FirStart’s entire paid up capital is held by Lalitha Mallya, Vijay Mallya’s mother.
Sources said UBHL had informed DoR: “FirStart Inc is not in a position to bring the balance amount of Rs 441.14 crore for the conversion of 44.15 lakh warrants and will forfeit the 10 per cent amount paid.”
Of the proposed Rs 708 crore, FirStart Inc already paid Rs 70.89 crore, 10 per cent upfront when 62.87 lakh were issued to it in December 2007 and an amount of Rs 196.92 crore was paid when 19.71 warrants were converted into shares in January 2008.
DoR had said that the security given for money raised by FirStart with the guarantee of Vijay Mallya and “...lien on warrants shows that gap between the net worth of Rs 522 crore of Vijay Mallya and amount raised of Rs 600 crore is not explained as it is not able to subscribe the balance warrants now.”
DoR also noted that UBHL has informed it that promoters have not decided as to how FirStart will repay the loan.
“In the event of default by FirStart, Vijay Mallya as guarantor has to repay the amount. Since Vijay Mallya’s net worth is India based, the Indian funds eventually will be in effect the source of funds for investments by FirStart,” it said.
Sources said DoR has asked the Department of Economic Affairs and the Department of Industrial Promotion and Policy to examine the proposal, in which UB sought the permission for making downstream investments.
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