Diageo fails to clinch USL deal on time

Diageo, which owns a 25.02% stake in USL, India's' largest spirits company, had agreed to acquire 27.4% stake in the firm

Diageo has failed to pick up its targeted 27.4 per cent stake in UB Group’s United Spirits Ltd as IDBI, a creditor to the group's Kingfisher Airlines, refused to release United Spirits Ltd (USL) shares pledged to the bank even after the settlement of dues.

Diageo, which owns a 25.02 per cent stake in USL, India's’ largest spirits company, had agreed to acquire 27.4 per cent stake in the firm but was unable to buy the remaining 2.38 per cent because USL chairman Vijay Mallya had pledged these shares to a consortium of banks to secure loans to fund the cash-strapped Kingfisher Airlines.

The Securities and Exchange Board of India rules had mandated Diageo to complete the stake purchase by November 11, six weeks from the original offer.

Now with just two days remaining for the deadline, Diageo may not be able to make it.

According to a regulatory filing, IDBI Bank Ltd has not released the pledged shares despite the clearance of all outstanding dues (including outstanding interest, prepayment premium and processing fees) by USL. The filing said USL had also served a legal notice dated September 6 to IDBI with respect to the release of the pledged shares.

“However, notwithstanding such repayment and repeated requests/demands on behalf of USL and ourselves, including the submission of a legal notice by USL, IDBI has refused to instruct the Security Trustee to release the pledge,” Relay BV, a wholly-owned subsidiary of Diageo Plc, said in the filing on Friday.

USL had pledged the shares to Unit Trust of India Investment Advisory Services (UTIIAS)  to secure loans from banks IDBI Bank Ltd and Punjab National Bank (PNB). USL reportedly owes PNB and IDBI Rs 800 crore each. The filing said PNB had issued a “no objection” certificate to release the pledge following the clearance of the dues by USL.

USL has also approached the Karnataka High Court against IDBI and UTIIAS on November 6, for relief in the matter.  Earlier this year, USL had sought to revoke the power of attorney granted to IDBI, to prevent the latter from selling the pledged shares to recover the loans provided to the defunct Kingfisher Airlines.

Bankers led by State Bank of India are fighting for dues of close to Rs 7,000 crore and are invoking personal and corporate guarantees against Mallya and promoter UB Holdings Ltd. A series of lawsuits have been filed against the airline as lenders seek to monetise collateral once the after a default on payments.