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United Spirits Ltd's (USL's) Rs 4,345-crore sale of its subsidiary Whyte & Mackay (W&M) to the Philippines' Emperador might face increased regulatory scrutiny following the Karnataka High Court's December order for a probe into diversion of Rs 4,000 crore in 2007 by USL to British Virgin Islands, a tax haven, for its W&M acquisition.
Since proceeds from the W&M sale are to be used for repaying foreign lenders, and not to be brought to India, the domestic bankers are planning to approach the Reserve Bank of India. The matter is currently pending with the Supreme Court, which has ordered the status quo.
A consortium of public-sector banks, which has an exposure of Rs 7,000 crore to USL promoter Vijay Mallya's now-grounded Kingfisher Airlines, is to meet soon to take a call on action to be taken on the W&M sale.
When contacted, Diageo, which owns 29 per cent in USL, said: "That transaction for the (2007) acquisition of W&M significantly pre-dates the events which are the subject of the current legal proceedings and has nothing to do with Diageo's transaction to acquire an interest in USL, agreed on November 9, 2012. Diageo understands all remittances by USL were done through normal banking channels, following receipt of all requisite approvals from RBI." Diageo took over the company from Mallya in 2012.
A spokesperson for Mallya's UB group said queries on W&M sale were irrelevant. "USL has nothing to do with the court cases."
The banks, led by BNP Paribas, were emphatic during the Karnataka High Court hearing that the diversion of funds by USL was not in the interest of its lenders and would impact United Breweries Holdings Ltd (UBHL), the guarantor to its loans. After Kingfisher Airlines defaulted on loans, lenders and aircraft lessors sued the airline, as well as UBHL, asking for their money to be returned. The Karnataka HC did not clear the sale of a seven per cent stake by UBHL to Diageo, as the shares were pledged with banks.
During the high court hearing, the lenders said there were no supporting documents to show why such a valuable asset was parked in a tax haven.
What has annoyed bankers is that the UB group, to get clearance for stake sale to Diageo, had given an assurance on April 14 last year that it would make a significant payment to Kingfisher lenders out of the proceeds from the USL share sale to Diageo. The group also requested the bankers not to sell USL shares in the market, which could derail the Diageo deal. But the group did not return any money to banks and, instead, sued them in various courts.
The lenders also raised queries over Diageo's $35-million investment in Mallya's South African brewery and its $135-million guarantee facilitation to the Force One racing team. This, lenders alleged, was part of the Diageo deal but the money was never brought to India.
THE W&M SALE SAGA
2007: United Spirits transfers Rs 4,000 cr to British Virgin Islands, a tax haven, to buy W&M
May 2007: United Spirits buys Whyte & Mackay
Nov 2012: Diageo buys United Spirits
Dec 2013: Karnataka HC orders probe into Rs 4,000-cr fund transfer, says UB group's sale of a 7% stake to Diageo is void
Feb 2014: The Supreme Court orders the status quo on sale of a 7% stake to Diageo
May 2014: United Spirits sells W&M to Emperador; proceeds to be used to pay off foreign lenders
