A clutch of banks led by the country’s largest lender, State Bank of India (SBI), is preparing to sell fugitive businessman Vijay Mallya’s shareholdings in three companies on June 23 in a bid to recover as much as Rs 6,200 crore lent to his grounded Kingfisher Airlines.
The share sale is due to happen through bulk deals in the three firms, United Breweries Limited, United Spirits Limited and McDowell Holding Limited, according to documents reviewed by Moneycontrol.
Mallya’s airline Kingfisher was grounded on October 20, 2012, after it plunged into a financial crisis. Mallya was declared a fugitive economic offender in January 2019 for defaulting on loans and allegedly defrauding banks. He is fighting extradition to India in UK courts.
If the share sale happens, this will be the first instance of banks making a significant recovery in the Kingfisher-Vijay Mallya case since the loan turned NPA, or bad asset, in late 2012. Mallya left India on March 2, 2016, for the UK after defrauding 17 banks and has not returned since then. He owes Rs 9,000 crore to banks and the accrued interest amount.
According to the documents reviewed by Moneycontrol, the sale of shares will happen under the scrutiny of the Bengaluru Debt Recovery Tribunal (DRT), which has authorised the recovery officer for the sale of shares to recover “Rs 6,203 crore along with costs and interest at 11.5 per cent calculating from June 25, 2013, till the date of recovery”.
What happens if the share sale fails?
In the event of a failure of shares under a block deal, banks can sell shares through the bulk, or retail, mode starting from June 24, the DRT documents showed. There is no “legal impediment for the Recovery Officer-||, Debt Recovery Tribunal-2 to sell the properties which are restored by the honourable special court,” the DRT order said.
Besides SBI, lenders to Kingfisher Airlines include Punjab National Bank, IDBI Bank, Bank of Baroda, Allahabad Bank, Federal Bank, and Axis Bank, among others. These lenders gave loans to Mallya over a period of few years against intangibles like company brand and goodwill and Mallya’s personal guarantee.
As per the share sale plan, the recovery officer will sell around 22 lakhs shares of McDowell Holding Limited, 4.13 crore shares of UBL and 25.02 lakh shares of USL in a block deal on 23 June. At today’s market price, McDowell Holdings will fetch Rs 13.8 crore, UBL stake will fetch Rs 5,565 crore while United Spirits shares will be sold at Rs 165 crore.
Banks are not in favour of selling shares in the open markets as such an action could negatively impact the share price of these companies, said one of the persons familiar with the matter, asking not to be named.
After the block deal dutch drinks company Heineken, which has around 46 percent shares of United Breweries, may increase its stake by at least 5 percent, taking its total shareholding to 51 per cent in the firm. Another existing investor, too, has shown interest in increasing shareholding in UB, another person familiar with the matter said. He too declined to be named.
On June 8, the Competition Commission of India said the proposed additional stake by Heineken in United Breweries does not raise any competition concerns, thus effectively clearing the deal.
Emails sent to UBL and Heineken seeking comments for this story didn’t yield any response till the time of filing.
On May 24, in a huge relief to banks, a Prevention of Money Laundering Act court in Mumbai restored to the lenders the properties the Enforcement Directorate had seized from Mallya. The court also restored the equity that was attached by Enforcement Directorate, paving way for lenders to encash these shares. Subsequently, the DRT kicked off the recovery process.
Besides the equity holding, banks can now sell other assets belonging to Mallya that find a mention in DRT’s 2017 decree and can auction them to recover their dues. So far, the ED has attached worth of around of Rs 12,000 crores of Vijay Mallya assets, half of which has been released for recovery, including the equity holdings of Mallya, according to an official in the investigation agency. He spoke on the condition of anonymity.
The move to attach personal assets, if executed well, can set a precedent in other high-profile cases including the PNB-fraud case, Winsome Diamond case where promoters have been declared fugitive economic offenders.
Between 2016 and now, Mallya has made offers to lenders to pay back the principal component but banks have not accepted the offer. Mallya left India just hours before banks moved Supreme Court seeking his detention. Though the efforts for extradition of Mallya is on since then, there is no meaningful progress yet.
Last month, a UK Court upheld an application by a lender-consortium led by SBI to amend their bankruptcy petition, in favour of waiving their security over Mallya’s assets in India. Chief Insolvencies and Companies Court (ICC) Judge Michael Briggs handed down his judgment in favour of the banks to declare there is no public policy that prevents a waiver of security rights, as argued by Mallya’s lawyers.