Mallya-Poddar bid for MCF hits UBI hurdle

Sebi asked to reconsider open offer nod as KFA was identified as wilful defaulter

The ambition of liquor baron Vijay Mallya and Zuari chief Saroj Poddar to jointly own a controlling stake in Mangalore Chemicals and Fertilizers (MCF) might not be smooth sailing, despite the Securities and Exchange Board of India's (Sebi's) approval to their open offer for additional stake in the fertiliser company.

United Bank of India (UBI), one of the many lenders to Mallya's now-grounded Kingfisher Airlines, has alerted Sebi that it had identified the airline as a 'wilful defaulter'. "The bank has requested Sebi to reconsider its approval to the Mallya-Poddar open offer," said a person familiar with the development.

A senior executive confirmed the bank had alerted Sebi on the issue. "On July 17, the bank wrote to the Sebi chairman... It appears Kingfisher Airlines' group companies have money to make acquisitions but not to repay the dues of the airline," said the banker who did not wish to be named.

In this case, Kingfisher Airlines has been identified as a wilful defaulter. But since the company has moved court, the bank is yet to declare it as a wilful defaulter. This has been explained to Sebi," the banker said.

According to the Reserve Bank of India (RBI) guidelines, a wilful default happens when an entity does not repay its dues despite having the capacity to pay and does not use the borrowed money for the purpose a loan was availed of. For instance, if a borrower uses short-term working capital funds for long-term purposes or deploys the borrowed money for creation of assets other than those for which the loan was sanctioned, it is interpreted as diversion of funds and the borrower is classified as a 'wilful defaulter'.

A spokesperson for Zuari declined to comment.

Kingfisher Airlines had moved the Calcutta High Court challenging UBI's communication that had asked board members, including Mallya, to meet the bank officials for an alleged wilful default on Rs 400 crore of loans.

Mallya, through UB Group, holds a 21.98 per cent stake in MCF. He has joined hands with Poddar, who is competing with Deepak Fertilisers for a controlling stake in MCF for over a year now. If Poddar manages to get management control at MCF, Mallya is expected to have a considerable say in the functioning of the company.

According to an agreement signed between UB Group and Poddar's Adventz Group on May 12, Mallya will remain the chairman of MCF for the next five years if they jointly gain a controlling stake in the company. Also, Mallya will be able to appoint three directors on the board and will have the right of first refusal over Poddar's shares in MCF.

Deepak Fertilisers currently owns a 25.3 per cent stake in MCF and has made an open offer, at Rs 63 a share, for an additional 26 per cent stake. To counter this, Poddar and Mallya have jointly made an open offer for a similar stake at Rs 68.55 a share. Sebi had approved both these open offer proposals last month. Poddar, through Zuari, holds a 16.43 per cent stake in MCF.

THREE-WAY BATTLE

• Deepak Fertilisers, which owns a 25.3% stake, is trying to get management control of MCF
   
• Poddar is competing with Deepak Fertilisers for a controlling stake in MCF
  

 

Mallya has joined forces with Poddar to launch a joint open offer and keep rival Deepak out
 

Deepak proposed an open offer, at Rs 63 a share
 

Poddar & Mallya, to counter Deepak's bid, have jointly proposed an open offer, at Rs 68.55 a share
 

Both open offer proposals have got Sebi's approval; Deepak has got the competition body's clearance as well