Heineken eyes control of Kingfisher beer maker - sources

By Sumeet Chatterjee and Nivedita Bhattacharjee

MUMBAI (Reuters) - Heineken NV is seeking to raise its stake in India's largest brewer, United Breweries Ltd , to gain full management control as it bets on the country's growing thirst for beer, sources with direct knowledge of the matter said.

Dutch brewer Heineken is the single-largest shareholder in United Breweries, maker of Kingfisher beer, with a 42.07 percent stake. It now plans to take that holding beyond 50 percent by buying shares from indebted liquor baron Vijay Mallya.

The stake increase -- a bet on one of the world's fastest growing beer markets by the world's third-largest brewer - will be completed in phases over the next couple of years, said the two sources, who declined to be named as the talks are private.

The total cost of Heineken's India bet is unclear as sources said talks were still in the early stages. At United Breweries' current market price, the deal could be worth as much as 71 billion rupees ($1.06 billion) if the brewer takes on the full 32.6 percent share held by Mallya and related companies.

The sources said it was too soon to say if Mallya would retain a minority stake in United Breweries, if and when the planned Heineken share increase is completed.

A spokeswoman for Heineken declined to comment. A spokesman for UB Group, Mallya's group holding company, said there had been no discussions on a stake sale in United Breweries.

Heineken indirectly acquired a 37.5 percent stake in United Breweries following its takeover of Scottish & Newcastle in January, 2008. It subsequently raised the stake by buying shares in the open market.

India's beer market is growing significantly faster than the world average, largely because it is still very small. Indians consume on average about 2 litres of beer a year, compared with 18 litres in Asia and 57 litres in western Europe, a note from rating agency Moody's said in July.

Two-thirds of Indians don't drink alcohol at all, often for religious or cultural reasons, but rapid urbanisation and a fast-growing middle class are changing consumption habits, making India an attractive market for global brewers.

GLOBAL PLAYERS IN INDIA

India does not boast many significant local brewers, leaving space for global giants to covet a spot, including Danish brewer Carlsberg A/S and SABMiller Plc .

Asia-Pacific, which accounts for almost a fifth of Heineken's operating profit, was the company's fastest growing market in the first half of this year.

Heineken's plans to increase its presence in India, however, also come against the backdrop of Mallya's financial troubles.

The high profile businessman, whose father turned United Breweries into India's leading brewery, is under pressure from lenders to repay hefty dues linked to ill-judged expansion, including his defunct Kingfisher Airlines .

Mallya's business empire previously included India's largest spirits company United Spirits Ltd , but he sold most of his shares in the company and gave management control to Britain's Diageo Plc in 2012.

"United Breweries will need to make huge investments over the next few years on distribution network as well as new products," said one of the sources. "Heineken, as a majority owner of the company, is in a better position to do that."

Besides Kingfisher, United Breweries makes and sells 14 other brands including London Pilsner.($1 = 66.7035 rupees)

(Reporting by Sumeet Chatterjee and Nivedita Bhattacharjee; Additional reporting by Robert-Jan Bartunek in Brussels; Editing by David Holmes and Keith Weir)