Mallya has to clear loan defaults to serve as USL chairman: Diageo
Loan default cases against Vijay Mallya and his UB Group may cast a shadow over his continuation as chairman of United Spirits Ltd in the future, with its current parent, UK-based Diageo, making it clear in a statement from its headquarters in London.business Updated: Oct 02, 2014 17:03 IST
Loan default cases against Vijay Mallya and his UB Group may cast a shadow over his continuation as chairman of United Spirits Ltd (USL) in the future, with its current parent, UK-based Diageo, making it clear in a statement from its headquarters in London.
Mallya got re-elected as chairman of USL with the support of majority shareholders during the company’s annual general meeting on Tuesday.
Diageo’s contractual obligations to support Mallya continuing as non-executive director and chairman of USL are subject to United Breweries Holding Ltd (UBHL) holding at least 1.3 million shares as well as “the absence of certain defaults by UBHL or Mallya,” said the statement, which was put out on Diageo’s website, a day after the USL annual general meeting.
With UBHL still holding about 4.6 million shares, Mallya may not face challenges as far as his stake in United Spirits is concerned. However, if Diageo raises concerns over default cases, Mallya might find it difficult to stay at the helms of USL. Mallya is fighting various default cases filed by his creditors including public and private sector banks.
Besides this, USL, under Diageo, has initiated inquiry into loans the company had lent to various UB Group entities.
“After the re-election his position on the USL board now looks solid. But With close to 55% shares, Diageo has enough influence to effect a change,” said an expert in company law who sits on the board of a few companies.
Meanwhile, the UB Group lost a position on the board of USL following the reduction in shareholding after creditors invoked pledged shares.
“Following a reduction in its shareholding in USL, UBHL is no longer entitled to recommend an independent director to the USL board under the shareholders agreement between the Diageo group and the UBHL group,” said the statement from Diageo.
Diageo now has four members on the board of USL including managing director Anand Kripalu, Paul Walsh, Ravi Rajagopal and PA Murali while Mallya remains the lone member from UB Group, which is now a minority shareholder.
A mail to the UB Group, seeking response on Diageo’s statement did not elicit any response till the time of going to the press.