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USL further rearranges financial house

Diageo-led spirits firm to repay fixed deposits worth Rs 450 crore by end-March

Raghuvir Badrinath  |  Bangalore 

United Spirits (USL), the country’s largest publicly held spirits company and now controlled by London-based global spirits major Diageo, has decided to repay its fixed deposit (FD) holders to the tune of Rs 450 crore before the end of this financial year.

The company has close to Rs 400 crore of deposits on which it had committed to pay as much as 11.5 per cent interest. With the new Act taking effect from April 1 this year, it decided to stop accepting FDs. It will repay all the existing ones.

USL said financial arrangements were ready and it had arranged with a bank for a line of credit to repay the FDs as mentioned earlier, along with interest.

This move by USL comes with Diageo undertaking various measures to bring global accounting standards to the former's balance sheet. After initiating a thorough overhaul, the Diageo-led board had to take some hard decisions and questioned how the resources of USL were being used to support various activities of other in the UB Group, the former majority equity holder.

The decision to launch an inquiry into this came after USL posted a net loss of Rs 4,488 crore for 2013-14, mainly due to a provisioning of Rs 1,123 crore for bad loans and a one-time exceptional expense of Rs 3,235 crore on sale of Scottish subsidiary Whyte & Mackay.

After grappling for nearly three months on how to sign off the 2013-14 profit and loss Statement, the board of USL had, earlier this month, instituted an inquiry led by Managing Director Anand Kripalu to find why as much as Rs 1,200 crore, whose recovery is now being considered doubtful, was lent to the group of UB. Worse, the USL auditors have raised the concern that this inquiry might lead to further adjustments, impacting opening balances, as these transactions had been made in earlier years.

Given the various winding-up petitions filed by a clutch of creditors against UB Holdings, USL has made a provision of Rs 330 crore, as a matter of prudence. It believes it can recover the rest. However, with UB Holdings itself in a precarious position, having written off as much as Rs 2,500 crore of loans to Kingfisher Airlines and making provision for another Rs 1,300 crore, analysts are apprehensive on how UBHL will be able to repay the Rs 1,300 crore loan to USL. According to information available, UBHL is left with only one sizable asset in terms of its holdings in UB Group’s beer company, United Breweries.

The worst shock for the USL board is believed to be a purported corporate guarantee given by USL on a Rs 200-crore loan that the now-grounded airline company of the group, Kingfisher, took from a private financial institution. “This matter came to the knowledge of the board after the management informed it of a letter dated May 5. We are contesting any such guarantee given for this loan; we do not have any knowledge of such a transaction,” USL said. The other big concern for Diageo-controlled USL is learnt to be the Rs 600-crore the company had provided to business associates, including third-party bottlers.

The borrowers are contesting the amount, claiming they, in turn, extended loans to various UB Group entities that remain unpaid. The business associates have told the USL board they would not pay back USL till they have recovered their dues from UB entities.

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First Published: Tue, September 30 2014. 00:48 IST