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United Spirits targets Singapore for FCCB issue

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Raghuvir Badrinath Bangalore
Last Updated : Jan 21 2013 | 2:31 AM IST

Vijay Mallya’s United Spirits, the flagship spirits company of the UB Group, is understood to have decided on Singapore as the destination for a Foreign Currency Convertible Bonds (FCCBs) issue through which it intends to raise up to $225 million.

The company is working at a feverish pace to complete the process before the end of April 2012. P A Murali, joint president & CFO, confirmed the destination and the timing of the issue to Business Standard.

“The initial responses from investors have been encouraging. We are looking at a four-figure mark of our stock price for the conversion rate,” a senior banker who is working with USL told Business Standard. United Spirits stock gained almost 4.5 per cent on Monday to close at Rs 554.35 a share on a flat Bombay Stock Exchange.

United Spirits intends to raise $175 million through this issue, which has an over-allotment option for an additional $50 million. “If we raise $175 million, around $100 million will be used to pay down a part of our Rs 7,700 crore debt... and if we raise $225 million, around $150 million will be towards reducing debt. The rest will be for operational expenses,” the UB Group management had told Business Standard.

Second issue
This is the second time that United Spirits will be taking the FCCB route after an $100 million issue during 2007, which was a success. The FCCB holders have since converted their bonds to stock.

The FCCB as an instrument has been a mixed blessing for Indian companies who want to access debt at relatively cost-effective rates. Companies usually issue zero-coupon bonds to global financial institutions with a tenure ranging from three-five years, the company as well the bond holders agree on a maturity value which varies in the range of 1.6 to two times. Companies usually peg the FCCB issue with the hope the stock will appreciate over three-five years and the bond holders will convert into equity, which allows the company to not pay back the sum borrowed.

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While this is an ideal situation, in the past year, several Indian companies have had to face an uneasy situation when stock prices plunged and bond holders declined to convert at a loss, even as companies did not have cash to pay back lenders, leading to tense situations.

“United Spirits is a market leader with as much as 55 per cent of the market share in the Indian Made Foreign Liquor (IMFL) sector and they have the wherewithal to deliver. The past records do indicate that. However, this time, United Spirits will have to punch much above its weight if the target of the share price is in the four-figure mark,” an analyst at a global brokerage told Business Standard.

Senior management officials at United Spirits said its board of directors is expected to meet ahead of its next board meeting, scheduled for the results of FY12. “While it will be a regular audit committee meeting, there are chances that the board may study one of the four options of reducing the gearing further,” they said.

United Spirits is under a leverage of 1.7 times on a debt of Rs 7,713 crore, and close to Rs 2,000 crore was piled on during the first nine months of 2011-12. Interest outflow as a result of this spiked by 34 per cent annually.

USL has four monetisable assets and strategies on its balance sheet — the treasury stock worth around Rs 800 crore, and the 8.5 million shares of United Breweries Ltd which United Spirits holds, worth another Rs 350 crore. The third is unlocking value in Scottish Whyte & Mackay, which USL acquired for $1.2 billion and the fourth one is unlocking value in Royal Challengers, the Bangalore cricket team in the Indian Premier League, valued in the region of $350 million.

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First Published: Mar 13 2012 | 12:53 AM IST

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