USL Q4: Shady deals cause for Rs 979 cr bad loan provision?

USL had loaned money to these vendors under agreements for enhancing capacity, obtaining exclusivity and lease deposits in relation to tie-up manufacturing units, and other such deals. The vendors confirmed the dues payable to the company in the earlier years, but are now disputing the amount.

They have refused to repay the loans unless they are returned the money owed by UB group companies.

In all, these vendors owe USL Rs 649 crore, but are claiming that UB group owes them Rs 590 crore. On this, a single entity has disputed an amount of Rs 224 crore, saying its agreement with the UB Group firm allowed it to withhold any dues to USL, unless its own loan was repayed fully.

“The claims made in relation to the advances to the parties may indicate that all or some of such amounts may have been improperly advanced from the company (USL) to such parties, in turn for being advanced to the alleged UB Group entities,” the company said in its notes to the audited financial results.

USL said it was entitled to recover all the amounts from the vendor.

“However, the management has also examined the financial capability of some of these parties, based on which the management has concluded that the ability of these parties to pay and consequently the recoverability of the relevant amounts is doubtful,” USL said in the notes.

In addition, the company has loaned Rs 1337 crore to United Breweries Holdings Limited, towards which it has made a provision of Rs 330.32 crore towards principal outstanding, and not recognized Rs 96 crore of interest income.

“The management believes that it should be able to recover and no further provision is required for the balance amount of Rs 995.68 crore, though it will try to recover the entire amount,” USL said in the notes.

But the auditors have qualified the statement.

“Given the various uncertainties involved with respect to the litigations involving UBHL as aforesaid and the extended period for repayment of the loan, we are unable to comment on the level of provision established,” said the auditors in their observation.

In more bad news for the company, it has received a letter from the lawyers of an entity which claims to have loaned Kingfisher Airlines Rs 200 crore at an interest rate of 15 percent, on the basis of agreements executed in December 2011 and January 2012. Under the agreements, certain investments of USL were subject to a lien, and required it to pledge those investments in favour of the claimant as a collateral against the loan.

USL says it does not expect any liability or obligation to arise out of the agreements.

But again, the auditors are not as sure.

“We are unable to conclude on the validity of these agreements; any required compliance with the provisions of the Companies Act and any consequential impact of the same,” the auditors said in their observations.

The USL board has directed an inquiry into all three matters, the possible existence of any other transaction of a similar nature and the role of the individuals involved.