United Spirits Limited (USL), the spirits arm of the UB Group, is understood to have pledged a total of 18.6 million shares amounting to little over 18 per cent stake to various financial institutions to raise $618 million to fund the acquisition of Scottish liquor major Whyte & Mackay.
United Spirits during May 2007 had acquired this firm for $827 million which will help USL gain malt whisky distilleries in Scotland and a range of spirit brands including legendary Whyte & Mackay and Jura single-malt brands. The payout of this debt is expected to kick start during middle of 2009.
Also read: Promoters must disclose pledged shares: Sebi
While the fact was known that the debt was raised to fund the acquisition of Whyte & Mackay, the recent episode of Satyam Computer founders pledging shares and not been able to service that debt unsettled many nerves in the market today.
USL shares were hammered down by nearly 23 per cent on a weak Bombay Stock Exchange and closed at Rs 567.95 per share. This news was compounded by the company’s dismal performance during the third quarter of the current fiscal which saw net profit drop by nearly 65 per cent. The company attributed this to high cost of molasses, the primary raw material used in making spirits.
According to company officials, United Spirits is leveraged almost three times on its equity of Rs 2,500 crore and the total debt is at Rs 7,100 crore.
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Industry analysts detail that with the dismal performance of the flagship spirits business and the general economic downturn, the company will have continued pressures on the margins going forward and will have a tough time servicing the debt. The company however said that the drop in net profit is restricted to third quarter alone and things have already started to improve with price of molasses coming down already.
"The group - United Breweries, United Spirits and Kingfisher Airlines require much cash. It will be a tough task ahead for this group," an analyst detailed.
Of the total pledged shares of 18.6 million shares, 13.7 million shares is treasury stock totaling to close to 14 per cent stake in United Spirits. Even as these shares are pledged, United Spirits is hoping to rope in a global strategic partner and is in talks with Diageo to offload a stake. United Spirits is hoping to offload this treasury stock to a strategic partner as and when talks fructify.
UB Group chairman Vijay Mallya recently stated that he is talks with three global players including Diageo for a strategic stake in the Rs 3,200 crore United Spirits.
"The interest is of strategic nature. We have a strong distribution network in India and global players wanting to enter India are keen on this. In turn, we will look to leverage our partners' global network for an international footprint. The talks, including with Diageo, are on," he had noted, declining to outline a timeframe for this strategic move.
The promoters of UB Group currently hold close to 37 per cent stake in United Spirits. With nearly 20 per cent pledged, the move to rope in a strategic partner may be further delayed.