INDIA: Speculation mounts over UB Group finance plan for beer, spirits

By Chris Mercer | 16 January 2012

UB Group to sell stake in United Spirits?

UB Group to sell stake in United Spirits?

UB Group's financial difficulties have lead to reports that it is again mulling a stock listing for Whyte & Mackay, as the pressure grows for greater outside investment in the firm's spirits and beer businesses.

UB Group's owner, billionaire Vijay Mallya, plans to house all of the firm's non-India spirits assets under the Whyte & Mackay banner and then seek an overseas stock listing, according to a report in India's Economic Times today (16 January). Citing a person close to the group, it said that the process has already begun.  

Financial turmoil at UB's Kingfisher Airlines, which is close to collapse, has heightened the fiscal pressure on other areas of the firm's business, such as United Breweries and United Spirits. Several analysts believe that Mallya will need to find more outside investment for the drinks units.

It is not the first time a potential stock listing for Whyte & Mackay has been mooted, although one broker who spoke to just-drinks said that a listing would take time to achieve. A quicker way of drawing in extra finance might be to sell a stake in United Breweries or United Spirits.

Heineken already owns 37.5% of United Breweries and the Economic Times said that UB Group has sought talks with the Netherlands-based brewer's board over further investment. When contacted by just-drinks today, a Heineken spokesperson declined to comment.

Sanford Bernstein analyst Trevor Stirling said: "Kingfisher airline is in deep trouble and [Mallya] is desperately seeking ways to leverage the other bits of his empire to raise cash." However, he said that a stake sale in United Spirits looks more likely than offering Heineken a bigger slice of United Breweries.

Mallya's personal stake in United Breweries is already at parity with Heineken's. A deal, therefore, "would probably mean losing control which he is reluctant to want to do", said Stirling.

"United Spirits is more likely," said Stirling. "Diageo and Bacardi are the obvious suspects." 

Speaking to just-drinks last week, a domestic drinks industry observer in India, who preferred to remain anonymous, said: “There is a definite possibility at this stage that the company could accept an international partner for United Spirits."

Back in 2009, Diageo and United Spirits ended discussions over Diageo's possible stake purchase in the Indian distiller, with valuation proving the main sticking point. The talks took place as UB Group sought ways of reducing debt incurred via its acquisition of Whyte & Mackay for GBP595m (US$1.18bn) in 2007.

UB Group could not be reached for comment when contacted by just-drinks today.

Expert analysis

Spirits in India to 2015: Databook

ICD Research’s, 'Spirits in India to 2015: Databook' contains detailed historic and forecast spirits consumption analysis, segmented at a category level.

Sectors: Beer & cider, Emerging markets – BRIC, Mergers & acquisitions, Spirits

Companies: UB Group, United Breweries, Whyte & Mackay, United Spirits, Heineken, Diageo, Bacardi

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