In what could be seen as further embarrassment for UB Group Chairman Vijay Mallya, the newly constituted board of United Spirits Ltd, now controlled by British liquor giant Diageo, has ordered an expansive inquiry into the loans given by USL to UB companies and their associates.
This is to find out why as much as Rs 1,200 crore (Rs 12 billion) whose recovery is now being considered doubtful was lent to the group companies.
Worse, the USL auditors have raised the concern that this inquiry might lead to further adjustments, impacting opening balances, as these transactions had been made in earlier years.
The decision to launch an inquiry came after USL posted a net loss of Rs 4,488 crore (Rs 44.88 billion) for 2013-14, mainly due to a provisioning of Rs 1,123 crore (Rs 11.23 billion) for bad loans and a one-time exceptional expense of Rs 3,235 crore (Rs 32.35 billion) on sale of Scottish subsidiary Whyte & Mackay.
For the January-March quarter, USL posted losses of Rs 5,380 crore (Rs 53.8 billion) on a revenue of Rs 1,943 crore (Rs 19.43 billion).
The USL board, which met for a fourth time on Thursday -- after three earlier attempts to finalise last year’s annual earnings failed -- authorised the company’s managing director & chief executive, Anand Kripalu, to launch an inquiry, along with independent advisors and specialists, to assess the quality of loans and how soon those could be recovered.
The biggest concern for Diageo-controlled USL is learnt to be the Rs 600 crore that the company had provided to business associates, including third-party bottlers.
The borrowers are contesting the amount, claiming they, in turn, extended loans to various UB Group entities that remain unpaid.
The business associates have told the USL board they would not pay back USL till they have recovered their dues from UB entities.
The USL management, meanwhile, has declined to club the two issues and said it would take all actions possible for recovery of its dues.
“The board has directed a detailed and expeditious inquiry into this matter and authorised the MD & CEO of USL to recover the dues. The board has also authorised other appropriate action to be taken, commensurate with the outcome of the inquiry,” USL said in a statement on Thursday.
"According to senior UB officials, the group has had leveraging interests with various associates, which are now trying to arm-twist the group after a change in control at USL.
Another sticking point in the bad-loan issue is of the Rs 1,300 crore (Rs 13 billion) USL provided in 2012 to UB Group’s holding company, UB Holdings, for eight years.
Given the various winding-up petitions filed by a clutch of creditors against UB Holdings, USL has made a provision of Rs 330 crore (Rs 3.3 billion) as a matter of prudence.
It believes it can recover the rest.
The worst shock for the USL board is believed to be a purported corporate guarantee given by USL on a Rs 200-crore (Rs 2-billion) loan that the now-grounded airline company of the group, Kingfisher Airlines, took from a private financial institution.
“This matter came to the knowledge of the board after the management informed it of a letter dated May 5.
"We are contesting any such guarantee given for this loan; we do not have any knowledge of such a transaction,” USL said.
“The inquiry advised by the USL board will go into all these matters, besides other possible transactions of this nature.
"The role of individuals involved and potential non-compliance with the provisions of the Companies Act (if any) will also be probed,” the statement added.
Mallya, chairman of both UB Group and USL, said a free and fair inquiry would be done on all aspects and appropriate actions taken.
- Rs 1,200 crore (Rs 12 billion): Value of loans to UB Group and its associates for which the Diageo-led United Spirits board has constituted an inquiry
- Doubtful loans: The Rs 1,200 crore of doubtful debt includes Rs 600 crore (Rs 6 billion) given to USL’s business associates like bottlers and distributors, and a purported corporate guarantee on a Rs 200-crore (Rs 2-billion) loan taken by KFA
- Inquiry committee: USL MD & CEO Anand Kripalu, along with a team of experts, will assess the quality of these loans and explore ways for early recovery
- Loans to UB Holdings: To the extent of Rs 1,300 crore (Rs 13-billion) considered recoverable over a six-year period; a provision of Rs 330 crore (Rs 3.3 billion) has been made, nonetheless
Image: Vijay Mallya