United Breweries Vijay Mallya Case Study

Vijay Vittal Mallya

Vijay Vittal Mallya is an Indian businessman and a former member of the Upper House of the Parliament of India. He is the ex-chairman of United Spirits, the largest spirits company in India and continues to serve as chairman of United Breweries Group. He is the subject of an extradition effort by the Indian Government to return him to India from the UK to face charges of financial crimes.

United Breweries

United Breweries Holdings Limited (UBHL) or UB Group is an Indian conglomerate company headquartered in UB City, Bangalore in the state of Karnataka, India. The company’s core business includes beverages, aviation and investments in various sectors. The company markets beer under the Kingfisher brand and owns various other brands of alcoholic beverages. It also launched Kingfisher Airlines, an airline in India whose operation have been halted after problems in 2014 that led to its license being revoked by the Directorate General of Civil Aviation (DGCA). United Breweries is India’s largest producer of beer with a market share of around 52.5% by volume.

Vijay Mallya is not an unknown name and he has been in the news for quite a time now for all the financial crimes committed by him. He has been declared as a fugitive offender and also a willful defaulter. There are also some money laundering cases going on against him in which he has failed to appear in the court. Recently, there have been further developments in this case.

Current Situation of United Breweries

Now let’s have a look at what the situation is:

• Market Capitalisation – The company has a market cap of close to Rs. 35,539 Cr.

• Heineken International – It is a Dutch company which acquired 43.5% stake in United Breweries. At that time Vijay Mallya had 29% holding in the company.

• Pledged Promoter Holding – Out of the 29% of the share held by Vijay Mallya, 13% of them were pledged to banks for the loans given by them. And these loan which were taken were for Kingfisher Airlines. Obviously, that business venture failed. The valuation of the total stake of Vijay Mallya in the company is close to Rs. 11,000 Cr and the pledged shares (13%) with the bank is close to Rs. 4,500 Cr.

• Shares with Enforcement Directorate (ED) – The remaining 16% stake of Vijay Mallya has been acquired by the ED. This has been done as per the rules under the Prevention of Money Laundering Act (PMLA), 2002. So, the 16% shares have been confiscated and been transferred in the name of ED. ED is now going to auction a major chunk from these 16% shares.
• Heineken doesn’t have a controlling stake in United Breweries and if as per the rules of PMLA, ED sells the shares with them, then Heineken will be more than willing to buy those shares. As per the Article of Association signed between Heineken and Vijay Mallya, none of the parties could buy more stake in the company from the open market. So, now Heineken can buy stake in the company through the auction that the ED will conduct. Heineken will then end up with almost 59% stake in the company and will have majority on the board.

• Lenders Aspect – The lenders have the first right on the shares of the company against which they had given the loan. But that happens in the case of bankruptcy, and United Breweries hasn’t gone bankrupt. That is why the afore mentioned rule might not be applied fully. So, how the recovered amount gets distributed maybe decided by the ED or the government. The majority of the loans taken from the banks for Kingfisher Airlines were from PSU banks and private banks were also there but in smaller amounts.

Summary

• The loan cannot be defaulted completely as the chances of recovering the loan amount are high. Only the United Breweries stake of Vijay Mallya amounts to Rs. 11,000 Cr and he also has some other business interests and properties in India amounting to Rs. 2,000 Cr.
• PSU banks will be the most benefitted from the auction of shares by ED as they may be supported by the government. Private banks will obviously get the amount for the pledged shares they hold but above that is all yet to clear.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company, or the stock of this company is bad.
• We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.