Vijay Mallya quietly sells shares of his holding company

The sale of shares in a United Breweries group holding company by promoter and chairman Vijay Mallya has raised eyebrows in financial circles for the low-key manner in which the shares were offloaded. Mallya is fighting to get Kingfisher Airlines, struggling under debt, back in air after employees unpaid since April struck work and India's aviation regulator raised questions on air-worthiness of its planes.

In the July-September quarter, three Mallya-controlled companies offloaded 8.41 per cent stake in United Breweries (Holdings), or UBH, thus paring their stake to 43 per cent. UB has at least 21 subsidiaries under it, according to its annual report, in a group with estimated revenues of some Rs 22,000 crore. The holding company's shares touched a 52-week high of Rs 155.90 each on Sep 27 on the National Stock Exchange from their 52-week lowest price of Rs 53.50. The rally was triggered by the reports that the world's largest distiller by value, Diageo, was buying a stake in United Spirits.

UBH holds 18 per cent in United Spirits, the world's No. 1 liquor company by volumes sold that has a dominant 55 per cent share of the Indian liquor market with brands such as Royal Challenge, Black Dog and McDowell's Celebration. The holding company owns 11.46 per cent in United Breweries, which makes and sells Kingfisher beer, and 24.5 per cent in Kingfisher Airlines.

The three Mallya companies that sold stake in UBH are Kamsco Industries, Gem Investment and Mallya Pvt Ltd. The exact amount realized is not clear but the sale of 5.26 million shares at could have yielded anything between Rs 28 crore and Rs 82 crore.

The transaction has market pundits asking why the promoters resorted to the sale. "UB Holdings is high on speculation by many speculators on the wrongful notions of United Spirit deal may help UB Holdings," says Kishore Ostwal, head of the equity research firm, CNI Research.

Independent market analyst Ashok Jainani says a promoter has to inform the company board of directors and stock exchanges. Failure to do so could lead to stock market regulator's investigations that could impose a penalty depending on the degree of the violations. Another analyst said if the violation is severe in nature, then the regulator could even impose a stock trading ban on such entities for a certain period of time in addition to a penalty. A buyer, even if he is not part of the promoter group, has to inform the exchange if he is breaching a threshold of five per cent.

The shareholding pattern of UBH in the July-September quarter, as listed on the National Stock Exchange website, shows Mumbai firm LKP Finance holding 7.36 per cent stake. LKP was absent from the list of UBH's shareholders in the data available for the April-June months.

Questions sent to Mallya, his chief financial officer Ravi Nedungadi and a group spokesman on Wednesday evening went answered. The spokesman said nobody was available to comment since Thursday was a holiday in Bangalore on account of the Karnataka state's founding day.

In normal circumstances, point out experts, promoters resort to selling shares in holding companies as a desperate measure: for urgent need of cash, to retire debt, or when he loses confidence in the health of the company.

UBH had exposures of Rs 13,014 crore by way of investments and guarantees to Kingfisher Airlines as of June 30. "The guarantees it [UBH] has provided to the airline is much more than its own net worth," says Ostwal, adding that not just the holding company risks being dragged under by the airline company, lenders could be in line next. "The banks, which have lent against the guarantees of UB (Holdings) have discovered they cannot encash this because of low valuations of the company, and hence are asking for personal guarantees of Rs 5900 crore from Mallya."

Shares of UBH closed trading on Thursday at Rs 117.75 each, up 0.6 per cent from the previous day.