'Mallya's stay on MCF board subject to legal proceedings'

Digbijay Mishra  |  New Delhi  

September 24, 2014 Last Updated at 00:48 IST

The chorus grew for a revised open offer by the rival bidders for Mangalore Chemicals and Fertilizers (MCF) as the scrip hit a 52-week high on Tuesday.

The Securities and Exchange Board of India (Sebi) has toldZuari Fertilisers and Chemicals that continuation of Vijay Mallya on the board of MCF would be subject to the legal proceedings initiated against him. Likewise for fellow director S R Gupte, also tagged as a wilful defaulter by United Bank of India (UBI).

There has been a joint open offer from Zuari chief Saroj Poddar and Mallya to acquire additional stake in MCF; it is slated to start from October 1 and go on till October 17.

The MCF scrip finally settled at Rs 76.5 on Tuesday, marginally down 0.3 per cent, on the BSE. The proposed open offers so far, by Zuari and by Deepak Fertilisers, are priced at Rs 68.55 and Rs 63 a share, respectively. The final date for an upward revision of the open offer is this Thursday.

“Both the open offer prices are very low compared to current market prices. Not many would be interested to tender their shares in such a case,” said a sector analyst who tracks MCF.

On September 19, Business Standard had reported that Nagreeka Foils, minority shareholders in MCF, had written toSebi for removal of Mallya from the MCF board and cancellation of contractual agreements between  Poddar and Mallya to acquire another 26 per cent stake in the company. UBI declared grounded Mallya, head of grounded Kingfisher Airlines, and three other directors — Subhash R Gupte,

Ravi Nedungadi and Anil Kumar Ganguly — as wilful defaulters for non-payment of dues worth about Rs 400 crore to the airline.

Jitendra Nath Gupta of SES, a proxy advisory firm, said  under the current guidelines of Sebi, Mallya could only be barred/removed from the MCF board and proposed open offer if convicted by a court.  According to an agreement signed between Mallya’s UB Group and Poddar’s Adventz Group on May 12, Mallya will remain the chairman of MCF for the next five years if they jointly gain a controlling stake in the company. Also, Mallya will be able to appoint three directors on the board and will have the right of first refusal over Poddar’s shares in MCF.

Mallya, through UB Group, holds 21.98% stake in MCF. He has joined hands with Poddar, who is competing with Deepak Fertilisers for a controlling stake in MCF for over a year. As of the June quarter, Deepak owned a 25.3% stake in MCF and had made an open offer, at Rs 63 a share, for an additional 26% stake.

To counter this, Poddar and Mallya had jointly made an open offer for a similar stake at Rs 68.55 a share. Sebi had approved both these open offer proposals last month. Poddar, through Zuari, holds a 16.43% stake in MCF. Competition Commission of India has also approved both the open offers.

Get Mallya off USL board

Rupali Mukherjee, TNN | Sep 20, 2014, 06.44AM IST

MUMBAI: Proxy advisory firms have recommended that shareholders vote against the resolution for reappointment of chairman Vijay Mallya at United Spirits as it may hinder the company's "business prospects". "In the interest of good governance, shareholders should be concerned that his appointment may hinder the business prospects of United Spirits, as banks are unlikely to extend credit to the company," the firms told TOI. 

The resolution on his reappointment will be taken up for voting in the Diageo-controlled United Spirits' annual general meeting to be held on September 30. The development may compound the woes of Mallya, who is already facing action over defaults to a clutch of state-owned banks and other financial institutions. 

This is because Mallya has been declared a wilful defaulter by several banks in connection with pending dues of Kingfisher Airlines, of which he was the promoter. The airline has reportedly emerged as the country's top non-performing asset after it failed to repay loans of over Rs 4,000 crore, borrowed mainly from state-owned banks. According to an RBI circular, banks must not extend loans to companies where a director is considered a wilful defaulter. When contacted, a company spokesperson said he did not wish to comment on this issue. 

Shareholder advisory firm IiAS said, "Until this matter is resolved, Vijay Mallya continuing on the board will constrain USL's ability to raise debt from the Indian financial system. IiAS recognizes that USL is a Diageo subsidiary, and can access funds support from its parent company. However, this is not an optimum way of doing business. Further, it understands that the decision to declare him as a 'wilful defaulter' is being contested by Kingfisher Airlines and Mallya himself." InGovern Research, a proxy firm, also echoed the same concern. "We also recommend investors vote against the contribution to charitable funds as the details are sketchy and the amount exceeds regulatory norms," Shriram Subramanian, founder and MD of InGovern, said. 

IiAS has also asked shareholders to vote against the revision in executive director and CFO P A Murali's remuneration. "Murali is answerable for the intra-group transactions for which USL has taken write-offs and provided for in its 2013-14 financial statement. Given that context, IiAS recommends that P A Murali step down from his directorship on the board." 

USL proposes to revise Murali's remuneration from Rs 4.2 crore per annum to Rs 12.89 crore (includes Rs 5 crore paid in FY15 as one-time bonus). For nine months, effective July 4, 2013, he was paid a compensation of Rs 4.78 crore. "The proposed remuneration is not commensurate with the performance of the company, and is significantly higher than industry peers. Moreover, given that IiAS believes that P A Murali should step down from the board, a discussion on his remuneration is moot."

Vijay Mallaya may be declared wilful defaulter if Formula 1 funding is linked to Kingfisher Airlines

ET Bureau | 11 Sep, 2014, 06.17AM IST


Any fund diversions by Kingfisher Airlines to Vijay Mallya's Formula 1 venture will strengthen the case of banks planning to classify him as a wilful defaulter, lenders said. 

A recent forensic audit by EY on behalf of the banks said Kingfisher Airlines diverted funds to its sporting company that participates in Formula 1. 

Bankers led by State Bank of India had asked EY to check if the company had diverted funds that had been loaned to finance the airline business. 

Banks have an exposure of Rs 7,000 crore to the company with State Bank of India having the highest at Rs 1,600 crore whilePunjab National Bank has loaned Rs 800 crore. 

After United Bank of India received backing from the Kolkata High Court to declare the company, its promoter and three directors AK Ganguly, Subhash R Gupte and Ravi Nedungadi as willful defaulters, other state-run banks such as SBI and PNB are planning the same. "This will strengthen our case to tag the company and the promoters as wilful defaulter. We had an inclination that loans were diverted to companies not related to the airline business," said a bank chief who did not want to be named. Mallya argued at the Kolkata High Court that United Bank had not given his company a fair hearing before declaring it a wilful defaulter. 

According to RBI norms, banks have to give borrowers an opportunity to justify themselves before being declared a wilful defaulter. 

United Bank has claimed that despite giving Mallya adequate notice, he failed to present himself at the bank and sent his lawyers to do so. 

So far, lenders have recovered aroundRs 600 crore mainly by selling shares of United Spirits and Mangalore Chemicals   that were pledged with them. Recently, RBI governor Raghuram Rajan said that the "wilful defaulter tag is a powerful weapon in the hands of creditors for resolving distressed assets".