Mallya’s move against banks to slow down recovery from KFA

 First post :Adrija Bose May 27, 2013

It seems Vijay Mallya is trying hard to delay banks’ attempts to recover loans from his grounded  Kingfisher Airlines by engaging them in protracted legal battle.

On 26 March, UB Holdings Ltd (UBHL) and its chairman Mallya had filed a suit against the lenders of his grounded airline Kingfisher for selling a portion of the pledged shares of United Spirits (USL) worth Rs 100 crore.  

The case filed against Axis Bank and SBI, among others, had together lent about Rs 7,000 crore to Kingfisher Airlines. 

Banks had initiated a recovery process against UBHL and Mallya, the guarantors for the loans, after KFA defaulted on repayments.

But banks seems unperturbed.

 A senior SBI official told PTI that they will continue to sell USL shares despite the notice. “We have sold a part of the USL shares. We have also received a legal notice from UB Holding restraining us from doing so. But despite that, we decided to sell them and are likely to sell the remaining shares as well as we are confident of the court ruling in our favour,” he said.

According to the official, SBI sold shares worth Rs 100 crore last week, which prompted Mallya to seek legal remedy fearing the move could jeopardise his deal with British liquor major Diageo, for which he announced an open offer details with the exchanges.

Banks have already recovered Rs 800-1,000 crore from debt-ridden KFA and is in the process of recovering the remaining Rs 6,000 crore. But, with Mallya taking the lenders to court, legal experts say the entire recovery process will slow down, reported Business Standard.

Earlier, Mallya had also cancelled the power of attorney (PoA) given in favour of IDBI Trusteeship Services on United Spirits’ pledged shares. So, anyone buying UB Group’s pledged shares of USL will be facing legal action from the former. A power of attorney is issued to the trusteeship, a neutral party, to safeguard the interest of lenders in case of a default by a borrower.

Why is Mallya so worried now?

 UB Group’s four percent stake in United Spirits has been given to lenders as collateral for the KFA loans. But, UB needs this stake to close its deal with Diageo.

Last week, in a breather for Mallya, the Karnataka High court allowed UBHL to sell its shares in USL to Diageo. With this, the $2 billion takeover of USL has crossed a major hurdle. The court order will help Diageo mop-up an initial 27.4 percent stake, provided the lenders to Kingfisher Airlines create no further hiccups.

And Mallya is trying to make sure they can’t.