United Breweries raises 1 million pound loan from Heineken

Vijay Mallya-led UB group has inked a loan agreement for one million pounds with Heineken along with a brewing pact, under which if the Indian partner defaulted in payment the Dutch firm would gain rights to produce and sell Kingfisher beer in the UK for five years.

The loan and brewing agreements were signed between Kingfisher Beer Europe Ltd (KBEL), subsidiary of United Breweries International Ltd, UK (UBIUK) and Heineken UK Ltd.

"On April 18, 2013, KBEL entered into a loan agreement with Heineken pursuant to which Heineken agreed to provide KBEL with a secured term loan facility of 1 million pound (approx. Rs 8.3 crore) to be made available...On October 9, 2013 and to be repaid in full by October 9, 2016," a statement by Heineken said.

The company further said: "The brewing agreement will grant Heineken the exclusive right to manufacture, package and supply Kingfisher Beer for sale in the United Kingdom and to manufacture an package Kingfisher beer for export by KBEL to Europe (excluding Germany) for a period of five years."

In addition, in exchange for royalty payments to KBEL, Heineken will receive the right to the sole and exclusive reseller of the product to certain customers, it added.

As per the agreement, if KBEL defaulted in the repayment of the loan, "Heineken has the option...To acquire an exclusive license from UBIUK to produce, market and sell the product in the UK".

It further said such licence would expire on October 2018 or earlier if the Indian firm is able to repay the debt before the date.

Under the pact, KBEL will continue to take responsibility for overall brand strategy and development of Kingfisher Beer in the UK; marketing and promotion of the brand and support for its own directly supplied trade customers.

Commenting on the development, KBEL CEO Damon Swarbrick said: "KBE will remain a standalone brand focused business responsible for the sales and marketing of the brand."

Heineken UK Managing Director Stefan Orlowski said the agreement allowed KBEL to focus on the development of Kingfisher beer in the UK, whilst leveraging on Heineken's sales, distribution and brewing capability in the UK.

"It will enable us to expand our range of premium world beers that we can offer into our modern retail customer and Star Pub & Bars Estate..."

The agreement with Heineken comes at a time when the UB Group is going through turbulent times due to its grounded aviation venture Kingfisher Airlines.

In November last year, in one of the biggest stake sales by an Indian firm to a foreign company, UK-based Diageo agreed to buy 53.4 per cent stake in United Spirits for Rs 11,166.5 crore in a multi-structured deal.