New York: Away from the furore over huge loan default in India by Vijay Mallya-led UB Group, its US-based brewery arm has secured a complex funding that it intends to repay later with a 'bridge loan' from its parent.
California-based Mendocino Brewing Company, which sells a number of beer brands including Kingfisher in the US, has got Mallya as its Chairman and is owned by UB Group through a complex shareholding structure.
In a regulatory filing with the US markets regulator SEC (Securities and Exchange Commission), Mendocino has disclosed having issued a 'promissory note' to Delaware-based Catamaran Services, Inc, in the principal amount of $325,000 (over Rs 2 crore).
It further said Mendocino had earlier also issued four promissory notes to Catamaran between January 2014 and June 2015, for principal amounts of $500,000 each. Catamaran's sole shareholder is an entity named Catamaran Holdings, Ltd, which interestingly "has directors in common with Inversiones Mirabel SA", one of the major shareholders of Mendocino.
The indirect beneficial owner of Inversiones is United Breweries Holdings Limited (UBHL), making UBHL the indirect majority shareholder of Mendocino. Mallya chairs the boards of UBHL as well as Mendocino. Mendocino further said it has also received a letter from Illinois-based MB Financial Bank permitting the company to obtain loans up to $400,000.
As per the terms of the promissory note, Mendocino has promised to pay the principal sum of USD 325,000 with accrued interest to Catamaran within 6 months, subject to the receipt by the company of a bridge loan from its majority shareholder.
This repayment is subject to the shareholder loan amount being sufficient either to pay the note through 'Permitted Payments', or to pay both the note and certain existing obligations of the company to MB Financial Bank.
The 'Permitted Payments' on the note are payments made from the portion of a Shareholder Loan that is in excess of $600,000, the filing further said. If the company is not able to satisfy its obligations on the note within six months, the note will get automatically extended for additional six months terms "until a Shareholder Loan sufficient to satisfy the note is received or the note is otherwise paid."
A major controversy has broken out back in India ever since Mallya left the country amid growing clamour for recovery of dues totalling over Rs 9,000 crore of the long-grounded Kingfisher Airlines in outstanding loans and interest amount. Mallya and his group firms are also being probed by multiple regulators and agencies including Sebi, Enforcement Directorate and SFIO (Serious Fraud Investigations Office).
Under terms of the promissory note, interest will accrue from the date of the note on the unpaid principal at a rate equal to the lesser of 1.5 per cent per annum above the prime rate offered from time to time by the Bank of America Corporation, or 10 per cent per annum, until the principal is fully paid. The note can be prepaid without penalty at the option of the company, but can not be amended without the prior written consent of MB Financial.
In another filing with SEC, Mendocino said it was unable to timely file its Annual Report on Form 10-K for the period ended December 31, 2015 "due to delays experienced in the collection of certain financial information about the Registrant's UK subsidiaries required to be included in the Annual Report". "The Registrant intends to file the Annual Report with the Securities and Exchange Commission within the 15-day extension period..." it added.
In its last annual report for 2014, Mendocino had disclosed having paid Mallya a total amount of USD 267,700 (about Rs 1.8 crore). This included $120,000 per year for services rendered as Mendocino Chairman and USD 147,700 by a subsidiary United Breweries International (UK) Ltd for promoting its "products in the Foreign Territory outside the United Kingdom".
The payment to him during 2015 would be known after the latest annual report is filed later this month. Mallya became Mendocino's Chairman in October 1997 and also served as its CEO until January 2005. Mendocino Brewing Company was founded way back in 1983 and it caught Mallya's interest in 1997.
Today it claims to produce over '20 nationally recognisable labels', including Red Tail Ale, and the company says it has "trekked from a 1983 production of about 400 barrels (5500 case equivalent) to the current production of about 75,000 barrels (over one million cases)". Its North American operations primarily consist of brewing and marketing proprietary craft beers. Its foreign operations are conducted through wholly-owned subsidiary United Breweries International (UK) Ltd and a step-down unit Kingfisher Beer Europe Ltd.