India-based United Breweries Group is seeking a buyer for its residual 4% stake in United Spirits worth Rs 22bn ($331m) to repay its loans. The development may also see its chairman Vijay Mallya quit his position in United Spirits by relinquishing his stake of 5% to UK-based drinks company Diageo.
Currently, the group's stake is pledged with banks that have lent Rs 70bn ($1,053m) to the group's Kingfisher Airlines, that is now non-operational.
Vijay Mallya is currently engaged in a tussle with United Spirits' British owner Diageo over Rs 21bn ($316m) lent by USL to several UB group companies. Diageo owns 55% of the company, reported Business Standard.
The terms of the agreement involves Vijay Mallya sell his entire stake of around 5% in USL to Diageo at a premium to the current price and following the stake sale he will also be required to step down from the board of his company, a source was quoted as saying by The Economic Times.
The development is an important milestone for Vijay Mallya as it will end the tussle with Diageo which has previously asked him to quit on grounds of alleged fund diversion as the company had lost confidence in him.
Vijay Mallya had promised to settle his dues regarding Kingfisher Airlines by the end of this fiscal and the deal will give him cash to settle most of the Rs 62bn ($933m) debt, The Economic Times reported.
However, Vijay Mallya's spokesperson was quoted as saying: "We have no immediate plans to sell our stake in USL as we believe it is an excellent portfolio to retain."
Earlier this year, Diageo had said that it may stand to lose more than 10 million shares of United Spirits Ltd (USL) worth over Rs 32.35bn ($487m) at current market price, in case of an unfavorable ruling on the several petitions filed against United Breweries Holdings Ltd (UBHL), from which it had acquired these shares.
As part of a $3bn deal in 2012, Diageo had bought these shares amounting to 6.98% stake in USL from UBHL. This enabled Diageo to gain a majority stake in the Vijay Mallya-owned UBHL.
However, the sale of shares was challenged in the court by the lenders of UBHL as the latter defaulted on the loans.
Image: Vijay Mallya may give up his position in United Spirits. Photo: Courtesy of Pixomar/FreeDigitalPhotos.net.