United Spirits mulls bond issue to refinance Rs 3,000-crore debt

United Spirits Ltd (USL), the flagship spirits arm of the UB Group, is looking at a bond offering within the next six months in an effort to refinance Rs 3,000 crore of debt.

India’s largest spirits company has Rs 4,200-crore debt on its books, Rs 1,200 crore of which is towards working capital. The other Rs 3,000 crore was raised during 2007, when it acquired Scotland’s Whyte & Mackay in a highly leveraged deal, denominated in pound sterling and valued at Rs 5,700 crore.

Ravi Nedungadi, UB Group president & CFO, speaking to Business Standard, said: “We are thinking of taking advantage and lock in low interest rates before these head north. We are getting feelers from global pension funds and endowment funds on their appetite for good-quality bond papers and this is certainly an option we will look within the next six months.”

USL is paying interest in the band of 5-6 per cent on the debt and given the fact that bond offerings are unsecured by nature, it will be able to wriggle out of the securitised debt situation.

During the past six months, United Spirits, which reported a top line of Rs 4,100 crore for FY09, took firm steps by first raising around Rs 950 crore through a treasury stock sale and then followed it by a Qualified Institutional Placement (QIP) mopping up Rs 1,600 crore.

United Spirits took the QIP step after it failed to seal a strategic stake sale to global spirits major Diageo, through which it was aiming for a global footprint for its products.

“Within six months, we have brought down the leverage from almost three times to two. The refinancing should help us ease the cash flow further, coupled with strong sales which we are witnessing,” Nedungadi added.

United Spirits, which has kept Whyte & Mackay as a wholly-owned subsidiary, is also looking at offloading a 30-40 per cent stake in it, as and when the Indian market opens up for high-value scotch. “Unlocking value for the sake of it is not the agenda. We did not get the enterprise cheap and we are not in a rush to leverage that brand. The part-debt settlement and refinancing of the rest should further our objective and wait for the market to mature before we offload stake,” he noted.

It is also set to become the world’s second-largest spirits company by volumes, dislodging Paris-headquartered Pernod Ricard. Initial estimates suggest USL sold 99 million cases (12 bottles a case) by the end of 2009, close to Diageo’s estimated sales of 106 million cases. Pernod Ricard is expected to have sold around 95 million cases.

The company is growing by 15 per cent in volumes. This impending step up the global spirits ladder closely follows USL’s Bagpiper becoming the world’s largest-selling whisky brand by volume in December. Bagpiper is expected to have sold 17 million cases during 2009 and topple Johnnie Walker (16.8 million cases) for the top slot.