 "Vijay Mallya")
Diageo-owned United Spirits will seek shareholders’ nod to report sick to the Board of Industrial and Financial Reconstruction (BIFR) as its accumulated losses as on March 31, touched 86 per cent of peak net worth during the past four financial years.
The losses were allegedly caused by fund diversions to defunct Kingfisher Airlines by United Spirits Chairman Vijay Mallya.
According to the Sick Industrial Companies (Special Provisions) Act, 1985, if the accumulated losses of a company, at the end of any financial year have resulted in erosion of 50 per cent or more of its peak net worth during the preceding four financial years, such firm is required to report to the BIFR.
In a notice to the shareholders for an EGM on January 22, USL said, “This EGM is being convened to consider and approve the enclosed report of the Board of Directors on such erosion and its causes, and the measures being taken as per the relevant provisions of SICA, and also to approve the reporting of such erosion to BIFR.”
The company said its accumulated losses as on March 31, at Rs 5,045.45 crore is greater than 50 per cent of the peak net worth in the immediately preceding four financial years at Rs 5,849.62 crore. USL said it has made provision of Rs 2,082 crore because of losses and doubtful debts during last fiscal.
USL stock on Tuesday was down by 2.69 per cent or Rs 82.40 to close at Rs 2,982.45, taking its market capitalisation to Rs 43,300 crore. Typically, companies that declare sick not only have drastic erosion of net worth, but also significantly lower market capitalisation.
“There seems to be a contradiction. You see companies with penny stocks that are referred to BIFR,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a proxy advisory firm. “We need to understand what is going on in Diageo’s mind. Is it to put pressure on Vijay Mallya?” he questioned.
USL generated cash profits during six months ended September 30, and is taking steps including entering into certain arrangements with certain overseas subsidiary companies of Diageo Plc for manufacture and sale of key brands. The Bengaluru-based liquor firm, which owns brands such as Signature, Antiquity and Black Dog, had in October last year declared to BIFR that its net worth had eroded by over half.
USL has reported that financial irregularities and fund diversion when Mallya ran the company cost USL over Rs 7,200 crores. In April last year, alleging fund diversion to Kingfisher and other UB Group entities, USL had asked its erstwhile promoter and chairman Mallya to quit the board, even as the liquor baron rejected the charge. In November, Mallya also hinted that he could exit USL sometime next year.
Mallya, who has said that his priority is to settle Kingfisher dues, has 3.76 per cent shares in United Spirits, of which almost 2.21 per cent is pledged with banks. The moment his shareholding drops below one per cent, his exit from the company will be sealed.
