Whyte & Mackay sale: USL seeks to make provision of Rs 4,600 cr

This will pare USL's net worth by Rs 3,690 cr, the write-off will require RBI's nod

United Spirits Ltd (USL), India's largest spirits company, is seeking to make a provision of Rs 4,600 crore, as part of a move to sell its Scottish subsidiary, Whyte & Mackay. The provision will result in a Rs 3,690-crore cut in USL's net worth.

The write-off will require the Reserve Bank of India's approval.

In May this year, USL had agreed to sell Whyte & Mackay for £430 million (Rs 4,260 crore) to a subsidiary of Philippines-based Emperador Inc.

In 2007, USL had acquired Whyte & Mackay for about $1.2 billion, through a highly-leveraged deal, by raising debt of $618 million from Citibank London and £325 million ($543 million) from ICICI Bank in London. Subsequently, USL's British Virgin Islands-based subsidiary, USL Holdings BVI, cleared the Citibank loan.

However, the ICICI Bank loan was refinanced, first in August 2011 and again in March this year.

Currently, USL Holdings (UK) owes an aggregate £370 million ($620 million) to Standard Chartered Bank, RaboBank International and DBS Bank. USL has said as a result of these, the total support, including interest payment and principal, stands at Rs 4,793 crore.

USL has said net proceeds of £408 million from the sale of Whyte & Mackay will be insufficient to repay the Intra-USL loan of Rs 4,793 crore, as of March 31, 2014. "The company is required, pursuant to mandatorily applicable accounting standards, to impair its investment in USL Holdings BVI by about Rs 2.2 crore and provide for the Intra-USL Group loan to the extent of Rs 4,652 crore to be further netted off by a write-back from foreign currency translation reserves of Rs 963 crore," USL had said in a regulatory disclosure, part of a move to seek shareholder approval.

USL, in which Diageo is planning to raise its stake from 29 per cent to about 55 per cent through an open offer starting next week, has said as a result of the reduction in net worth, it will have to report into the Sick Industrial Companies (Special) Act.

"However, the board believes this report would arise as a technical requirement due to the exceptional and one-time write-off and does not reflect upon the long-term prospects of the company," USL said in a note to shareholders.
SALE SAGA

• In 2007, USL acquires Scotland-based Whyte & Mackay for $1.2 billion, through its foreign subsidiaries
• Raises $618 million from Citibank London and £325 million through ICICI Bank London to fund the acquisition
• USL gives $618-million loan to its subsidiary USL Holdings Ltd, British Virgin Islands, to clear the Citibank Loan
• The loan from ICICI Bank was refinanced; £370 million of principal is due to Standard Chartered Bank, RaboBank International and DBS Bank
• In May 2014, USL agrees to sell Whyte & Mackay for £430 million to Philippines based Emperador Inc, which leaves a shortfall
• USL is, therefore, seeking to provide for Rs 4,652 crore, which requires RBI approval
• This will pare USL's net worth by Rs 3,690 crore
• Net proceeds of £408 million will be insufficient to repay the dues, Rs 4793 crore