Is Heineken looking to increase its stake in United Breweries?
Indian Gatsby Vijay Mallya, probably the most flamboyant of the business tycoons in the country, has been in deep problems for a long time now, and the flow of bad news from his group companies doesn’t seem to abate.
Realizing that Mallya needs a lot of cash to save his ailing airline and pay the debts, Dutch brewing major, Heineken is looking to increase its share in India’s number one beer company, UBHL. According to industry grapevine, Heineken has offered to buy a part of United Breweries Holding’s stake in United Breweries. Heineken is already the co-promoter of the United Breweries Limited with 37.41 percent stake. United Breweries Holding Limited, the promoter holding company of United Breweries, holds 37.4 percent in the company. However, United Breweries has apparently not yet agreed to the discussions on the subject of selling its stake to Dutch company.
At the current market price of INR 874 per share (Friday 27th September closing at Bombay Stock Exchange), United Breweries 37.41 percent stake is valued around INR 85 billion. However, even if United Breweries sells a part of its stake, it will not be able to bring in adequate capital to pay off the dues of Kingfisher Airlines, which stopped operations last year in September. At the AGM of Kingfisher Airlines in second half of September, Vijay Mallya had not only said that UBHL will infuse capital into Kingfisher Airlines, but had also indicated that the company was in talks with foreign investors. While Mallya is keen to get his airline company up and flying, it would be difficult without some help from UBHL. Vijay Mallya holds a 37.5 per cent stake in United Breweries, whose market capitalisation is around INR 216 billion. Mallya’s total holding in the company is valued at about INR 85 billion.
To make the matters worse, five lenders to UB Group-owned Kingfisher Airlines, which were in talks for some time with legal experts to explore legal options to gain access to the United Breweries shares, have filed winding up petitions in High Court of Karnataka.
Karnataka high court has adjourned the case to 30 September, after creditors of affiliate Kingfisher Airlines Ltd denied Chairman Vijay Mallya’s request to pay a month’s salary to employees of the airline. Before the court hearing, Mallya had said that UBHL would ask the court for permission to pay one month’s salary to Kingfisher employees who haven’t been paid for 14 months.
Whatever be the outcome of the hearing on Monday (the day this piece is written), it is clear that India’s largest brewer is in trouble, which is likely to continue for some more time. According to the company’s own admission in an investor’s presentation (16th Aug 2013) it is holding a 50% share of the Indian beer industry (down from its earlier 54 %). It seems, this is a perfect time for other beer companies operating in the Indian market to go for a kill and increase their market share.
