The Bombay High Court on Tuesday refused to restrain banks from selling shares of United Spirits pledged as security against loans to Kingfisher, which apparently jeopardised liquor baron Vijay Mallya’s plans to complete stake sale to Diageo Plc and to revive the grounded Kingfisher Airlines (KFA).
After hearing both sides, the banks and Kingfisher’s parent company United Breweries Holdings which had filed the suit, Justice S J Kathawala said: “Ad-interim relief refused.” In effect, this court order would essentially mean that the consortium of 17 banks would be now free to sell shares of the subsidiary companies of the UB Group which had been pledged with the lenders under an agreement in 2010.
During the course of arguments, the banks informed the court that the process of sale of shares had already begun. Their counsels informed the court that after the borrower defaulted on repayment and it was decided to sell the pledged shares as per the deal between the parties. Even those banks which are not part of the consortium have also started selling the shares, they said.
Birendra Saraf, Counsel for UB Group, told mediapersons that the banks had informed that one crore shares of Mangalore Chemicals and Fertilisers, a subsidiary of UB Holdings, pledged with the lenders, had already been sold. “The deal was materialised today,” he said.
He had told the court earlier that 23 lakh shares of companies, including United Spirits Ltd and Kingfisher Airlines were pledged in exchange for loans.
Mallya-owned UB Holdings pleaded that the banks be restrained from selling shares of United Spirits Ltd (USL) and other companies collectively worth Rs 100 crore. The petition sought a stay after State Bank of India sold a portion of USL shares recently, prompting the Mallya-owned group to move the high court for relief.
The action by the banks, led by SBI which is the lead lender to the airline with over Rs 1800 crore dud exposure, is seen as a big setback to Mallya’s plans of reviving the airline as well as completing the stake sale in USL to Diageo, announced last November for over Rs 11,000 crore. The banks decided to sell shares of USL after Kingfisher failed to repay their dues worth over Rs 7,500 crore since January 2012.
In February, the banks had decided to recall the loans to Kingfisher by selling a portion of the collaterals with them which included USL and Mangalore Fertilisers shares, Mallya’s Goa villa and also the Kingfisher House in Mumbai apart from the brand Kingfisher which was valued at over Rs 4,000 crore at the time it was pledged.
Finance Minister P Chidambaram appeared to support such a move when he, last month, asked state-run banks to take action against rich promoters of ailing companies.
“We cannot have an affluent promoter and a sick company. Promoters must bring in money… We wish banks take firm steps to recover non-performing assets,” he said after a meeting with bankers.
While SBI has an exposure of Rs 1,800 cr to Kingfisher, Punjab National Bank has Rs 800 cr, IDBI Bank (Rs 800 cr), BoI (Rs 650 cr), Bank of Baroda (Rs 550 cr), United Bank of India (Rs 430 cr), Central Bank of India (Rs 410 cr), UCO Bank (Rs 320 cr), Corporation Bank (Rs 310 cr), State Bank of Mysore (Rs 150 cr), Indian Overseas Bank (Rs 140 cr), Federal Bank (Rs 90 cr), Punjab and Sind Bank (Rs 60 cr) and Axis Bank (Rs 50 cr).
The lenders hold 3.5 cr shares of USL as collateral which at Tuesday’s closing price is worth over Rs 6,550 crore. More than 90 per cent of promoters stake are pledged with various banks.
Meanwhile, USL scrips on Tuesday closed at Rs 1859.80, down 1.5 per cent on the BSE, while Mangalore Chemicals & Fertilisers (MCF) closed at Rs 39.30, up 20 per cent and Kingfisher closed Rs 8.71, up 4.06 per cent on the BSE, whose popular indice Sensex rallied with a gain of 176 points at the closing.