Endgame for Mallya: His exit from Kingfisher, MCFL brings fizz to UB stocks

In an irony of sorts, self-proclaimed ‘King of Good Times’ Vijay Mallya on Tuesday saw shares of hisvarious group companies soar higher even as fresh troubles surfaced in form of the group’s holding entity being slapped with yet another ‘wilful defaulter’ tag.

This came a day after Mallya having to quit top posts at two group companies – Mangalore Chemicals & Fertilisers Ltd (MCFL) and long-grounded Kingfisher Airlines.

While most analysts have long stopped covering UB stocks due to continuing troubles at various group companies and lack of liquidity, they were also taken by surprise to see a sudden spike of up to 20 percent in their share prices on Tuesday.

Some of them said investors might be seeing the developments as a beginning of the endgame for Mallya, who no more has controlling stakes in United Spirits and United Breweries Ltd and his exit from MCFL and Kingfisher could leave UB Holdings Ltd (UBHL) as the only major entity where he may still have a significant role.

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A few other analysts, however, said that the spike in UB group stocks could be like a ‘dead cat bounce’, which speculators might use to exit from their long-held positions.

The latest round of problems began last week with the minority shareholders of United Spirits Ltd (USL) trouncing proposed financial dealings of the company with its erstwhile promoter Mallya, who remains its Chairman as of now. USL’s controlling shareholder Diageo is mulling over ways to take forward the matter after an unprecedented activism on part of investors to reject a proposal involving business transactions between existing and erstwhile promoters. In another unprecedented setback, Mallya’s re-appointment as Managing Director of Kingfisher Airlines has been annulled by the government, while he had to quit on his own from the board of MCFL yesterday.

The problems are expected to grow further as several banks, including state-run SBI, are believed to have written to the boards of various UB group firms that no further loans would be provided to them in the wake of defaults made by Mallya and his group companies.

A senior banker said the loans availed by almost all UB companies indicated a complex web of transactions, where one entity was guarantor for the other and the second one took loans on the basis of guarantees given by yet another entity from the group or from among the promoters. Notwithstanding the mounting troubles for the group, its holding company UBHL saw its share price surge by 19.80 per
cent to close at Rs 23.90 on the BSE. McDowell Holdings also rose by 19.93 per cent to Rs 34.30, while United Breweries climbed 8.11 per cent to Rs 825.65. United Spirits Ltd gained 7.14 per cent to Rs 2,913. Shares of Pioneer Distilleries were also up 5 per cent. Trading in shares of two companies – Kingfisher and UB Engineering – got suspended on Tuesday due to their non- compliance to Listing Agreement norms.

Kingfisher, which had to be grounded in October 2012 due to severe financial crunch and mounting debt, had sought the Corporate Affairs Ministry’s approval for Mallya’s re-appointment for a period of five-year beginning October 16, 2013 “without remuneration”, but the plea got rejected.

MCFL also announced yesterday Mallya’s resignation as a director without giving any reason. Kingfisher, which once prided itself as the most luxurious airline with Mallya being known as the ‘King of Good Times’, alone used to command a market value of over Rs 10,000 crore once, but now stands at just about Rs 100 crore. The overall UB group market value has tanked by over half in the past one year, while excluding United Spirits. The penal action by stock exchanges followed the companies’ inability to prepare and publish financial results in time, which the firms have attributed to lack of staff. Kingfisher has previously faced strong staff protests for non-payment of salaries, while it is also under regulatory scanner for various accounting lapses.

Mallya was serving as Chairman and Managing Director of Kingfisher, which has been without a full-time CEO ever since Sanjay Agarwal left the company early this year. As per the norms, a company which is in the red or has inadequate profits, needs to approach the Corporate Affairs Ministry to get approval for appointment of key managerial personnel and directors and get no-objection certificates from shareholders and lenders. The Ministry rejected the proposal in this case as it was already turned down by shareholders and lenders, sources said, while adding this particular decision was not directly linked to Mallya being declared a wilful defaulter.

The UB group has been seeing continuous troubles on various fronts for the last couple of years, beginning with a major cash crunch and high debt at once-luxury airline Kingfisher, forcing it be grounded in October 2012. The group, which is also engaged in legal tussle with lenders, later sold a controlling stake in its prized unit United Spirits to Diageo while some other assets where also divested in other businesses and two rival bidders came up from MCFL.

The UB group, which once commanded huge market values for all its entities in businesses ranging from liquor to fertilisers to aviation, has been facing financial troubles for past couple of years and a severe cash crunch led to Kingfisher Airlines being grounded over two years ago. There are also pending service tax default cases against Kingfisher. Default on loan payments has already seen a number of
banks resorting to legal options to reclaim their funds, while some of them have also declared Mallya as a wilful defaulter. The carrier is yet to submit its annual financial results for the 2013-14 period to the stock exchanges.

PTI