Another USL step to ease balance sheet

United Spirits Ltd, the flagship spirits arm of Vijay Mallya’s UB Group, tonight announced it had refinanced £370 million ($600 million or Rs 2,675 crore) of the remaining debt originally taken to acquire Whyte & Mackay, the Scottish spirit maker, in 2007.

“The new loan has a seven-year tenure, including a three-year moratorium and a ballooning repayment over the subsequent four years,” the company said in a statement. The total hedged cost of this new debt is about 45 basis points lower than the existing loan, it added.

USL had acquired Whyte & Mackay (W&M) for £595 million ($970 million) in 2007 to have a strong presence in the scotch whisky market. Though it had repaid some of the debt since then, the interest cost was weighing on the balance sheet in recent times. USL has a net debt of close to Rs 6,000 crore.

This is the third major step USL has taken in the past 18 months to reduce its leverage, after initially offloading treasury shares and then raising another tranche through a Qualified Institution Placement issue. Sector experts say the refinancing of this debt would give leverage to the company to clean up its balance sheet, otherwise facing difficulty after the termination of a bulk sales deal of W&M with Diageo in the recent past. Presently, W&M is working hard to increase brand sales not only in its traditional European market, but also in emerging countries.

“This arrangement gives W&M the flexibility of focusing on brand building plans, which are receiving encouraging response,” the company said. It has said operational profit would be hit during the year while it tries to re-invent as a branded player.

USL had sales of just under 114 million cases (12 bottles of 750 ml each or nine litres to a case), including the sales in its subsidiary companies, during 2010-11 and has become the largest distilled spirit marketer in the world in volume. It aims to cross 200 million cases in five years. Recently, it restructured its top deck to drive business growth, appointing Ashok Capoor managing director and president.

The company reported a seven per cent rise in net profit to Rs 403 crore in 2010-11 against Rs 376 crore reported earlier. Total income in FY11 rose 29 per cent to Rs 6,423 crore, as compared with Rs 4,979 crore in the earlier year. Operating profit rose 24 per cent to Rs 1,017 crore over the same period last year.