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Kingfisher lenders free to sell pledged UB shares: HC

Vijay Mallya’s UB Group had filed a petition in the high court last week to prevent creditors of Kingfisher Airlines from selling shares in group companies United Spirits and Mangalore Chemicals and Fertilizers that have been pledged as collateral for loans. Photo: Mint (Mint)Premium
Vijay Mallya’s UB Group had filed a petition in the high court last week to prevent creditors of Kingfisher Airlines from selling shares in group companies United Spirits and Mangalore Chemicals and Fertilizers that have been pledged as collateral for loans. Photo: Mint

Ruling means that lenders can continue to sell shares of USL, MCF to partly recover their money

Mumbai: The Bombay high court on Tuesday rejected a plea by United Breweries (Holdings) Ltd (UBHL) for a three-week halt on banks selling shares of UB Group companies that were pledged with them as collateral for loans.

This means lenders can continue to sell shares of United Spirits Ltd (USL) and Mangalore Chemicals and Fertilizers Ltd (MCF) to partly recover their money. The lenders have, in fact, sold all shares of MCF that they held.

This could also adversely impact the proposed revival of grounded airline Kingfisher Airlines Ltd and delay the plan of Diageo Plc’s to buy a 53.4% stake in USL for 11,170 crore, including an open offer to buy 26% from public shareholders.

UB Group chairman Vijay Mallya, UB Group’s holding company UBHL and Kingfisher Finvest India Ltd had filed a petition in the high court last week to prevent creditors of the grounded airline from selling shares in USL and MCF.

Birendra Saraf, lawyer for the UB Group, had said the offloading of pledged shares by lenders would harm investors.

A lawyer representing State Bank of India (SBI) said it has sold all the 11.5 million shares of MCF that it held. It has sold 285,000 shares of USL, the person said.

The SBI lawyer said the lenders’ consortium has decided to sell the shares in a “responsible" manner, that is, dependent on market movements.

The share sales follow lenders telling the airline they will seek to recall loans.

A group of 14 banks with a combined exposure of 7,000 crore to Kingfisher Airlines has started selling shares in USL and MCF that Mallya offered as collateral when the airline’s debt was restructured in 2011, according to two bankers who declined to be identified.

Kingfisher Airlines has been grounded since 1 October, first because of staff protests over unpaid salaries and then because of regulatory issues. Its flying licence expired on 31 December and a revival plan prepared by the airline to start limited operations this summer failed to convince the aviation regulator.

The airline has to furnish no-objection certificates from bankers, airport operators, aircraft leasing companies, certificates of support from maintenance firms and spare parts vendors of Airbus aircraft, and pay salaries before it can seek the Directorate General of Civil Aviation’s permission to fly again.

The latest court order can delay the Diageo-USL deal.

“Diageo has stated its intention to go for creeping acquisition if the ongoing open offer at 1,440 a share fails, which is likely. This fresh sale by banks further fragments ownership of the USL shares away from the Mallya-Diageo consortium and makes the process of Diageo’s acquisition that much more tedious. This could result in some weakness in the stock in the near term, which will be a buying opportunity for long-term investors," said Gautam Sinha Roy, vice-president (equity strategy and product) at domestic brokerage house Motilal Oswal Securities Ltd.

On Monday, independent directors of USL approved Diageo’s open offer to buy 26% of USL from shareholders.

Earlier, Diageo said it would offer 1,440 a share, the same price it paid to Mallya and USL.

“The agreement between Diageo and UBHL and related parties requires that Diageo will have a clean title to the shares. We will not comment on the process by which UBHL will ensure this happens," a Diageo spokesperson said.

Meanwhile, the lenders are preparing to file a separate petition in a debt recovery tribunal (DRT) against the airline under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act after recalling their loans.

This could happen before the end of this week. The Act allows secured creditors to move a DRT to recover their money. Recovery cases at a DRT are cleared relatively faster than conventional legal means, but a borrower can move higher court against decisions by a tribunal.

SBI, the leader of the creditors’ consortium, has the maximum exposure at 1,600 crore to Kingfisher Airlines, followed by Punjab National Bank ( 800 crore), IDBI Bank Ltd ( 800 crore), Bank of India ( 650 crore), Bank of Baroda ( 550 crore), United Bank of India ( 430 crore), Central Bank of India ( 410 crore), UCO Bank Ltd ( 320 crore), Corporation Bank ( 310 crore), State Bank of Mysore, an SBI associate bank ( 150 crore), Indian Overseas Bank ( 140 crore), Federal Bank Ltd ( 90 crore), Punjab and Sind Bank ( 60 crore) and Axis Bank Ltd ( 50 crore).

Their exposure amounts to 6,360 crore, with unpaid interest taking it up to 7,000 crore.

Apart from stock, lenders hold two UB Group properties in Mumbai and Goa and two helicopters, besides the Kingfisher Airlines brand as collateral, in addition to a personal guarantee from Mallya.

MCF gained 20% to close at 39.30 per share on Tuesday on BSE, while the benchmark S&P BSE Sensex index gained 0.93% to end at 19,040.95 points. Kingfisher Airlines gained 4.06% to close at 8.71, USL lost 1.57% to close at 1,859.80 and UBHL rose 4.91% to close at 43.80 apiece.

In a separate development, Kingfisher Airlines paid salaries for June and July 2012 to its employees a day before the start of the sixth season of the Indian Premier League. Kingfisher Airlines employees, who had not been paid since June, had threatened to disrupt the cricket matches if their salaries weren’t cleared. The Royal Challengers Bangalore team is owned by USL


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