Srei agrees not to sell shares to Diageo at discount

Srei move comes after banks sent legal notice not to sell shares at lower than CMP

Srei Infrastructure Finance Ltd has agreed not to sell its 4.9 million shares of United Spirits Ltd (USL), a Vijay Mallya-promoted company, to Diageo Plc at a discounted price after lenders to Kingfisher Airlines Ltd, another Mallya-led firm, raised objections to the deal.   

The lenders to the grounded Kingfisher, including State Bank of India (SBI), the country’s largest bank,   have sent a legal notice to Kolkata-based Srei, asking it not to sell the shares to Diageo Plc at a discounted price. The lenders have residual rights to these shares worth Rs 1,340 crore as on Friday’s closing, after Srei recovers the collateral from the airline.

A senior SBI official said Srei could not sell these shares, which were around four per cent of USL, at a lower value as even the lenders had rights over these shares. A Srei official confirmed that it was not planning to sell the shares to Diageo at a discount to market price.

Srei acquired the 4.9 million shares of USL after buying a Rs 440-crore loan advanced to Kingfisher by ICICI Bank Ltd. Srei also had a loan exposure of Rs 70 crore to the airline.

Since Diageo announced the acquisition of USL in November last year, the latter’s stock has shot from Rs 1,440 to a lifetime high of Rs 2,569 as on Friday. Selling Srei’s the shares to Diageo at a lower price would hurt the interests of the public sector banks.

Following Srei’s move not to sell the shares to Diageo, the Mallya-owned UB group had cancelled on Tuesday the power of attorney given to IDBI Trusteeship Services on these USL shares. United Breweries Holdings Ltd (UBHL), the holding company of the UB group firms, and Kingfisher Finvest said anyone dealing with these shares would do so at their own risk.

Banks have sunk Rs 7,000 crore in Kingfisher Airlines. The airline, which has now suspended operations, owes money to suppliers, fuel companies, airports and the tax department, as well.

If Srei decides to sell the shares in the stock market and not to Diageo, it would change the British company’s calculations to acquire USL. In a deal signed between Diageo and the UB group in November last year, the former acquired a 27.4 per cent stake in USL for Rs 1,440 a share, at a total consideration of Rs 5,725 crore to the promoters.

It also launched an open offer at the same price, but did not find many takers as the market price of USL was far above the offer price. According to the deal, valued totally at $2 billion, USL will offer 10 per cent of equity as preferential offer to Diageo.

United Bank of India, which has a Rs 400-crore exposure to Kingfisher, has moved the Karnataka High Court against UBHL. The matter is now pending.