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Business News/ Companies / Can SBI scuttle Vijay Mallya’s sweetheart deal with Diageo?
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Can SBI scuttle Vijay Mallya’s sweetheart deal with Diageo?

Whether lenders have a claim on Vijay Mallya's retirement deal will depend on the nature of their loan agreements with Mallya's companies and the extent of his personal guarantees

Photo: MintPremium
Photo: Mint

Mumbai: Three years after lenders first said that they would use all available options to recover their loans to the beleaguered Kingfisher Airlines, State Bank of India (SBI) has finally stepped up and sought an arrest warrant against the carrier’s promoter, Vijay Mallya.

The lender in its application to the Bangalore debt recovery tribunal (DRT) has also asked for Mallya’s passport to be seized and all his assets to be declared.

SBI’s aggressive stance against Mallya has cast a shadow over his sweetheart retirement deal under which Diageo Plc was to pay him $75 million to step down from his position as non-executive chairman of United Spirits Ltd.

In its attempt to make an example of borrowers, will SBI’s actions directly impact Mallya’s deal with Diageo?

And can lenders, including SBI lay claim to the $75 million?

Unlikely, said people familiar with the case.

“The settlement came after three to four months negotiations. Though lenders can tighten their grip on Mallya, it is not going to be easy for them (to get their hands on the $75 million)," a person familiar with the matter said, asking not to be identified.

SBI’s actions may have also been prompted by Mallya’s disclosure that he will be moving to London.

As for Diageo, it will want to pay and get out of the way, leaving the lenders to slug it out with Mallya, said a second person familiar with the matter who spoke on condition of anonymity.

Banks have already taken possession of two large properties (Kingfisher House in Mumbai and Kingfisher Villa in Goa) that belong to Mallya. They have also sold their shares in Kingfisher Airlines and United Spirits. A large part of the collateral was the Kingfisher Airlines brand which at one point in time was worth over 3,000 crore. It is now worth very little.

And $75 million is a significant amount of money.

Still, whether lenders have a claim on this will also depend on the nature of their loan agreements with Mallya’s companies and the extent of his personal guarantees.

Which could probably explain the demand for an arrest warrant, explained a lawyer.

“Lenders use the application for arrest warrant as a tool to get the borrower on the table to negotiate a one time settlement offer," added this person who specialises in stressed asset cases and didn’t want to be identified.

“Banks can then be in the driver’s seat while negotiating and can get a higher repayment," the lawyer said.

Mallya and Kingfisher Airlines owe 7,800 crore to a consortium of 17 lenders led by SBI, which has exposure of over 1,600 crore to the airline. Other lenders include Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, Central Bank of India, Federal Bank Ltd, Uco Bank and Dena Bank.

Banks, riddled with bad loans, have been striving to clean up their books through asset sales and recoveries. Reserve Bank of India (RBI) governor Raghuram Rajan, too, has been pushing banks to get tough on defaulters, particularly on those who have wilfully defaulted on their loan obligations.

In a 22 January interview on NDTV, Rajan took a dig at those who owe banks money, but continue to lead lavish lifestyles.

“If you flaunt your yacht, massive birthday bashes, etc, even while owing the system a lot of money... it seems to suggest that you don’t care. I think that is the wrong message to send out. If you are in trouble, you should show that you care by cutting down your expenses," Rajan told journalist Shekhar Gupta on NDTV’s ‘Walk The Talk’ show.

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Published: 03 Mar 2016, 10:54 AM IST
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