Loan recall, corp guarantees may derail USL-Diageo deal

The USL- Diageo deal may be in jeopardy after banks have recalled loans given to Kingfisher Airlines. Bankers told CNBC-TV18 that they could invoke the corporate guarantee of UB Holdings and file for liquidation of the company. This could endanger the transfer of USL shares owned by UB Holdings to Diageo, reports CNBC-TV18's Gopika Gopakumar.

The recall of loans given to Kingfisher Airlines by consortium of banks can actually put the entire USL -Diageo deal in jeopardy. Lenders state that they can also invoke corporate guarantees given by UB Holdings as collateral for Kingfisher Airlines.
In the first step of invoking this guarantee, banks will send a legal notice to the guarantor-  UB Holdings- to repay the entire debt of Kingfisher Airlines which is around Rs 7,000 crore. In the event UB Holdings is unable to repay the debt in the stipulated time-period banks can then file a liquidation suit in the court which could then prevent UB Holdings from alienating any of its assets.
So UB Holdings could be prevented from transferring its shares in USL to Diageo as part of the deal. And this could throw spanner in the works of the USL-Diageo deal. However, Diageo can save the deal if it enters into an out-of-court negotiation or settlement with the consortium of banks.
However, banks also hold USL shares pledged by UB Holdings as collateral for Kingfisher Airlines but banks are unwilling to sell these shares to Diageo because the current market price is much higher than the open offer price set by Diageo. So, unless Diageo looks at revising the open offer-price, banks will not look at selling those shares to Diageo.
The consortium of banks is a bit miffed because the Kingfisher management is unwilling to commit to infuse any funds from the USL-Diageo deal. All these factors will work against the conclusion of the USL-Diageo deal unless Diageo decides to enter into a settlement with the banks.