Have not sold jewellery, have only embellished it: Vijay Mallya

Have not sold jewellery, have only embellished it: Vijay Mallya
New Delhi:

It may not be time to rejoice at Kingfisher Airlines yet after United Breweries chairman Vijay Mallya today said he would handle the Kingfisher issue separately after striking a deal with Diageo Plc, the world's biggest spirits maker, to sell a controlling stake in United Spirits. The UK-based spirits maker will acquire a 53.4 stake in United Spirits for Rs 11,166 crore (nearly $2 billion).

The holding company, United Breweries Holding Limited,  will decide on a rehabilitation plan for Kingfisher Airlines separately, he said, adding that inter-company issues, if any, will be sorted out.

“(I am) happy that the dream has come true…United Spirits will receive a large cash infusion. It will deleverage itself via the cash received and get Rs 3,300 crore via the deal, and UB Holdings will get Rs 2,400 crore via the deal, Mr Mallya said, adding “Have not sold jewellery, have only embellished them”. Mr Mallya was referring to media reports earlier that he may have to sell his prized assets to save the troubled Kingfisher Airlines.

Mr Mallya, who will continue in his current role as chairman of United Spirits, said: “We have multiple businesses and each business operates independent of each other, there is no cross contamination with each other. I have done what is best for the beer business, now I have done what is better for the spirits business. Similarly, I will do what is best needed for the Kingfisher Airlines at the appropriate time.”

Some analysts, however, said the deal may not be enough to revive Kingfisher Airlines, according to a Reuters report. The Centre for Asia Pacific Aviation has said a fully funded turnaround for Kingfisher would cost at least $1 billion.

"At this moment, Kingfisher may be a difficult cause to revive. As other UB Group companies are also quite overleveraged, I think they will prioritize restructuring other group companies ahead of Kingfisher," Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Ltd in New Delhi, said.

"Some of the Mallya group companies have been in turbulence for some time. This is his final opportunity to revive the fortune of the group," Mr Thunuguntla said.

Shares in United Spirits have nearly tripled this year, with much of the gains coming in the past four months amid market talk about a possible deal with Diageo.

Mr Mallya has been scrambling to raise funds for the ailing carrier for nearly a year now. The airline has struggled to pay its staff for most of the year and has not flown for more than a month because of protests and safety concerns. On Thursday, it announced a record loss of Rs 754 crore for the second quarter, but said that a recovery plan was in the works. Auditors to the airline flagged concern over the financials and said the carrier's second-quarter net loss would have been much higher, at about Rs 1,032 crore, had it followed "generally accepted accounting standards" for certain income and expenses.

Kingfisher has about Rs 8,000 crore of debt. Its lenders have been putting pressure on Mr Mallya to bring in capital. Analysts have said that lenders cannot force Mr Mallya to infuse funds into Kingfisher Airlines from the Diageo-USL deal. In his meeting with lenders in September 2012, Mr Mallya had categorically said he would not use any proceeds from a stake sale in USL to fund operations at Kingfisher.

In late October, Mr Mallya reiterated his stand. "I am not so sure that I lack commercial acumen to the extent that I would sell a hugely thriving, successful business to take the cash and put it into an airline in an environment such as India," he said at the Indian Grand Prix at the Buddh International Circuit south of New Delhi. "My group is sufficiently cash-generative to fund the airline as we have done. We have put almost 150 million pounds (Rs 1,306 crore) since April 2012 into the airline. But that has not meant that I have had to sell my family silver to fund the airline."

With inputs from Reuters