UBHL auditors raise concern over Kingfisher exposure, defaults

Auditors of UB group's holding firm, UBHL, have raised concerns over its significant exposure to debt-ridden Kingfisher Airlines, as also on delays and defaults related to tax dues and repayments to lenders.

UBHL (United Breweries Holdings Ltd) is the holding firm for Vijay Mallya-led UB group, whose companies include United Breweries Ltd (UBL), United Spirits Ltd, McDowell Holdings, Mangalore Chemicals and Fertilisers and UB Engineering, besides crisis-hit Kingfisher Airlines (KFA).

The observations have been made by the auditors in UBHL's latest annual report for the financial year 2011-12 that is being circulated among the shareholders ahead of the Annual General Meeting (AGM) on September 27 in Bangalore.

As per the Auditors' report, UBHL has a "significant financial exposure to KFA in the form of investments in equity, loans and advances and guarantees.

"KFA has considerably scaled down its operations and it is under severe financial stress. No provision has been made in the accounts for the probable loss that may arise due to non-recovery of loans and advances and other receivables, decline in the value of investments and invocation of guarantees."

UBHL, on its part, has said that the company along with its subsidiaries has significant financial exposure on various counts to KFA, which has ceased to be a subsidiary with effect from February, 18, 2012 and is now an associate company.

This exposure as on March 31, 2012 included equity investment of Rs 2,114.28 crore, loans and advances Rs 1,048.7 crore and other receivables Rs 209.08 crore, and corporate guarantees to banks/aircraft lessors Rs 8,925.86 crore.

"Certain corporate guarantees have been invoked and KFA is under negotiation in this regard with beneficiaries. The management is reasonably confident that none of the guarantees would eventually devolve upon the company," UBHL said.

"The ultimate impairment of investments and non-recovery of loans and advances are not presently quantifiable and hence no provision has been considered in the accounts," it added.

The company said that the Indian airline industry and KFA in particular is currently exposed to one of the toughest operating environments and is expected to struggle with profitability pressures.

The auditors of UBHL further observed that service tax dues amounting to Rs 2.42 crore and custom duty of Rs 7 lakh have been outstanding for more than six months.

UBHL is generally regular in depositing its statutory dues including those related to provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax and other material statutory dues, they added.