UB Holdings comes under fire from auditor

Corporate guarantees worth Rs 8,700 cr invoked by banks

After United Spirits, the auditor of UB Holdings has raised concerns over Rs 8,707 crore of corporate guarantees extended by the Vijay Mallya-owned holding company to the lenders of Kingfisher Airlines.

The auditor has also warned the liabilities of UB Holdings will rise by Rs 7,730 crore because it has not accounted for several disputed liabilities of the company in its annual accounts.

In its report for UB Holdings for 2014-15, auditor S Vishnumurthy of Vishhnu Ram & Co said the corporate guarantees had been invoked by the lenders, who were pursuing recovery actions against the company.

“This may result in a loss to the company and no provision has been made in the accounts for such a possible loss,” the auditor said. He added UB Holdings’ accumulated losses of Rs 1,458 crore were more than 50 per cent of its net worth.

The auditor’s reports of UB Holdings and United Spirits, now owned by Diageo, will play a crucial role in the ongoing investigation by the Securities and Exchange Board of India and the Serious Fraud Investigation Office into Mallya’s group companies.

The agencies are investigating United Spirits and other group companies after a forensic audit of United Spirits by Diageo showed several holes in its books. The annual report of United Spirits for 2014-15 is still not filed with the stock exchanges. Diageo has sought Rs 1,337 crore from various Mallya entities, saying these funds were diverted from United Spirits’ accounts.

The auditor said winding-up petitions filed against the company had been admitted by the Karnataka High court, which restrained the company from selling any assets after it failed to repay dues worth Rs 6,203 crore.

When contacted, a UB Holdings  spokesperson declined to comment.

The auditor said UB Holdings  had not recognised in its financial statements the disputed liabilities amounting to Rs 7,730 crore arising out of invocation of its corporate guarantees and claims of another Rs 146 crore made by banks.

“Had the company recognised these, the current liabilities would have been higher by these amounts and guarantees under contingent liabilities and claims not acknowledged as debt would have been lower by Rs 7,730 crore and Rs 146.3 crore, respectively,” he said.

Besides, the auditor said the value of company’s Rs 255 crore investments in a few subsidiaries had declined in value and the company had not provided for this.

The auditor said Rs 847 crore was shown as due from a financial company which had sold UB Holdings’ investments that were pledged with it and appropriated part of the proceeds against dues from Kingfisher Airlines. UB Holdings has petitioned the Calcutta and Karnataka high courts, challenging the validity of the pledge. But the company has not provided for any possible loss in this regard.

According to the UB Holdings’ management, it is not possible to estimate the losses and consequently quantify the amount of provision required in these cases. “Had the company estimated and provided for the losses, the profit would have been lower by such amount and the liabilities in the balance sheet would have been higher,” the auditor said.

The Sebi had asked UB Holdings in April to restate its accounts for the last two years to address the concerns of the auditors. The company later moved the Securities Appellate Tribunal, which stayed the Sebi’s order.

For 2014-15, UB Holdings had made a profit of Rs 32 crore on revenue of Rs 624 crore (see chart). The sagging financial health of UB Holdings would make it difficult for banks to recover their dues, said a banker who dealt with Kingfisher Airlines in the past.