Mallya may sell 49% in W&M

United Spirits (USL), the Rs 3,500-crore flagship of the UB Group, has stated that it was open to divesting up to 49 per cent in Whyte & Mackay (W&M), the Scotland-based whisky firm which it acquired during May 2007 for Rs 4,800 crore.

This process of deleveraging debt-heavy balance sheet of United Spirits could be through by roping in a private equity investor or a strategic investor or through a public offer. United Spirits currently is leveraged nearly three times and has a debt of Rs 7,100 crore.

United Spirits had tied up a £325-million loan from ICICI Bank in addition to a £210-million loan from Citibank to fund the acquisition of W&M.

Whyte & Mackay is understood to have sales of £160 million and a net profit of around £23 million during last year. For the nine months of FY09, Whyte & Mackay achieved a sales growth of 8 per cent. USL’s stock surged more than 13 per cent on Monday and closed at Rs 700.80 on the National Stock Exchange.

A company spokesperson noted that divestment of 49 per cent in Whyte & Mackay was always part of United Spirits’ deleveraging plan. He added they couldn’t offer to comment further, except to say that that they expected the value to reflect the substantial appreciation in W&M’s Scotch whisky inventory.

In addition to looking to raise capital from this divestment, UB Group Chairman Vijay Mallya is in discussions with global spirits major Diageo to divest up to 38 per cent in the flagship United Spirits itself. “This will reduce the debt burden in United Spirits to a major extent and indications are that the company may be able to raise anywhere around Rs 1,200 -1,500 crore,” a source close to the company noted.

United Spirits had acquired Whyte & Mackay after protracted negotiations spreading over nearly an year to own this globally reputed distiller of Scotch whisky, which owns iconic brands such as The Dalmore, Isle of Jura, Vladivar vodka, Glayva, Fettercairn and Whyte & Mackay scotch. It also owns several other Scotch whisky brands such as Mackinlays, John Barr, Cluny and Claymore.

In a recent disclosure, United Spirits noted that the Scotch whisky stocks held by Whyte & Mackay have appreciated by 49 per cent since acquisition and is currently valued at £456 million.

According to a spokesperson of the UB Group, the valuation of this Scotch whisky has been done by an independent valuation firm appointed by a group of bankers. When United Spirits acquired Whyte & Mackay, it had 116.7 million litres of original alcohol and the prevailing cost of a litre was £3.12. “Now the stock is 98.5 million litres and the value per litre is £4.65 ,” a spokesperson detailed.

W&M’s Invergordon Distillery, near Inverness, is one of the largest scotch whisky distilleries with a capacity of producing 40 million litres of alcohol per annum. The capacity of this facility can be easily increased to 80 million litres annually at an investment of only around £10 million.