United Spirits PE deal unlikely to sail through

United Spirits, India’s largest spirits firm from the stables of UB Group, efforts to raise Rs 1,000 crore through the private equity route is unlikely to sail through. United Spirits, owned by Indian billionaire Vijay Mallya has been in discussions with global private equity giants including KKR and Capital International to raise resources to largely settle the huge debt pile of the firm.

Private equity sources indicate that United Spirits move to demand a premium over the existing market price is the stumbling block and the PE players have understood to have expressed their reservations. Ravi Nedungadi, president, UB Group while not commenting on whether the talks with private equity investors has fallen through, said that they (USL) have asked for a premium on what the market offers. “The PE players have recently concluded their due diligence process and we are awaiting their offer,” he added.

If the PE deal does not sail through, United Spirits will have other windows open including a rights issue, GDR or a QIP and a decision to go through either of these routes may be finalised pretty soon.

United Spirits since early July 2009 has been taking concrete steps to deleverage its balance sheet which had a debt of Rs 7,100 crore, a leverage of close to three times. USL, during July, raised close to Rs 950 crore through an open market sale by selling 10.28 million shares held under USL’s treasury stock at an average price of around Rs 890 a share to investors. USL has a total of 18.6 million shares under treasury stock and the remaining ones may be used to further pay back the debt.

USL had raised Rs 2,985 crore debt to acquire Scotland-based Whyte & Mackay for around Rs 5,730 crore during 2007. During 2009, USL had to repay Rs 549 crore. During May USL made a payment of Rs 215 crore and on top of that it made an additional Rs 334 crore payment during July, which is due in November.

In addition to Rs 549 crore which is actually due in 2009, USL is paying back an additional Rs 955 crore.

As against a repayment obligation of Rs 549 crore, USL would have paid back Rs 1,500 crore during 2009. If the second tranche of Rs 1,000 crore is also raised during this fiscal majority of that will also be used to settle debt further, bringing down the debt close to Rs 5,000 crore and thus deleveraging further.