The Securities and Exchange Board of India’s (Sebi’s) decision to restrict wilful defaulters — promoters, companies or directors — from accessing the capital markets to raise money could likely impact the future plans of at least three companies where industrialist Vijay Mallya and his group firms are shareholders.
State Bank of India, United Bank of India and Punjab National Bank have declared Mallya and the now-defunct Kingfisher Airlines wilful defaulters.
Since Mallya, along with United Breweries (Holdings) Ltd (UBHL) and associate companies, own equity shareholding in three listed firms — United Spirits Ltd (USL), United Breweries Ltd and Mangalore Chemicals and Fertilisers — the Sebi order could hit plans of these three companies, legal experts said.
According to the latest data available on the Bombay Stock Exchange (BSE), Vijay Mallya along with his group companies own 3.99% in United Spirits Ltd, while 54.78% is owned by Diageo’s Relay BV. In United Breweries, Mallya along with his group firms have a 32.29% equity stake, while Scottish and Newcastle India and Heineken own 42.38%. Mallya’s companies own about 21.98% in Mangalore Chemicals and Fertilisers while Zuari Fertilisers and Chemicals owns 53.03%.
According to Yogesh Chande, a partner with law firm Shardul Amarchand Mangaldas, the Sebi order limits access. “The release issued by Sebi only restricts raising of funds by way of ‘public issue’. It appears that there is no restriction on, for example, doing a rights issue, by existing listed companies, or its directors, or its promoters who are wilful defaulters. The Sebi paper did contain a recommendation that rights issue be permitted by such existing listed companies, apart from private placement to QIBs, subject to disclosures. (We) will have to wait and watch.”
The Sebi order also bars wilful defaulters from taking board positions in listed companies. Mallya is the chairman of the boards of Sanofi India and Bayer CropScience Ltd. While his tenure as director on these two boards looks doubtful, both companies did not comment on the issue.
“Since Dr Mallya is no longer chairman of United Spirits (USL), this announcement by Sebi does not impact USL. Hence, we have no comment to offer,” a spokesperson from United Spirits said.
The UB Group did not respond to requests for comments.
Mallya left for UK on March 2 even as authorities, including the CBI and the Enforcement Directorate (ED), commenced investigations into alleged default on loans amounting to Rs 7,000 crore by Kingfisher Airlines, and also on money laundering charges. The banks have already initiated steps to auction some of Mallya’s properties to recover part of the loans.
“Past public issues will not be affected, but similar plans in the future cannot be exercised by wilful defaulters,” said Mona Bhide, managing partner at Dave Girish & Co. According to legal expert Hemant Sahai, the order is clear that companies, where the wilful defaulter is a promoter or director, cannot access capital markets.