INDIA: Diageo move for United Spirits safe, despite pledged share sale

Diageo's move to take control of The UB Group's United Spirits division remains on course, despite court approval for UB's creditors to sell off pledged shares in the unit, just-drinks understands.

Vijay Mallya, who heads up UB and holds around 27% of United Spirits (USL), was told yesterday (2 April) by the Bombay High Court that he must provide a personal guarantee of INR5bn (US$91.9m) to obtain a four-week protection period against lenders hoping to sell a portion of pledged shares in the unit. However, this was followed late yesterday by news that the court had rejected outright a plea by Mallya's United Breweries Holding (UBHL) to stop the divestment of pledged shares to creditors that comprise 17 banks led by the State Bank of India.

The creditors subsequently have started selling their shares in USL as they look to recoup funds lent to UBHL to prop up its Kingfisher airlines business. The troubled airline has lost its aviation licence, has not flown since October and owes around $2.5bn to banks, staff, airports and oil companies.

The share sale prompted reports that Mallya may struggle to keep hold of enough shares to sell to Diageo as part of the deal announced last year. Diageo is set to take a 27.4% share of USL - effectively all of Mallya's stake - before launching a mandatory tender offer to minority shareholders, representing another 26% of the company.

While Diageo will start the public offer next week, just-drinks understands that it has not yet completed the purchase of Mallya's shares in USL.

“The Diageo deal is intact,” a source close to the issue told just-drinks earlier today. “The banks can sell up to 1.8% of the USL shares pledged directly towards airline loan. Diageo … can sew up the deal without the shares pledged for Kingfisher loans.”

Local reports have also said that, while UBHL had pledged a total of 35.2m shares of USL with various entities, the consortium of banks led by SBI only holds 2.6m shares as collateral.

Separately, Diageo has confirmed to just-drinks today that it has “received all the regulatory approvals required” for the mandatory tender offer. A spokesperson said it expects "no further comments" from the Securities and Exchange Board of India (SEBI).