India’s United Spirits To Sell Stock, As PE Talks Fail

MUMBAI (Reuters) – India’s United Spirits (UNSP.BO), is set to sell new shares worth about $300-350 million to institutions to help cut its debt, after efforts to sell a stake to private equity firms and Diageo (DGE.L) failed.

The world’s third-largest spirits maker by volume is set to place the shares with institutions (QIPs) as early as this week, three sources with direct knowledge of the deal said.

“The market is good enough for a share sale. Why opt for a PE firm that buys at the same price and adds little value otherwise,” one source said. The sources declined to be named as they are not authorised to speak to the media.

UB Group Chief Financial Officer Ravi Nedungadi and United Spirits President Vijay Rekhi did not respond to emails sent to them for comments.

Citigroup (C.N) and UBS (UBSN.VX) are among arrangers for the deal, which follows several months of talks with private equity firms Blackstone (BX.N) and Kohlberg Kravis Roberts & Co [KKR.UL] as well as investment firm Capital International.

United Spirits has debt of 65 billion rupees ($1.4 billion), which it took partly to fund the acquisition of scotch whisky maker Whyte & Mackay, and has said it aims to cut this to 40 billion rupees by the end of March 2010. [ID:nBMA005890]

Chairman Mallya said in early September he planned to cut the firm’s debt by end October. [ID:BMA005890]


In June, United Spirits sold treasury stock, carried on its books from past mergers and acquisitions, at an average 900 rupees a share to raise about $186 million, which it used to repay some of its loans.

It still has over 8 million shares of treasury stock which it can sell or issue fresh ones. Sources said United Spirits would opt for the latter. It got shareholders approval last month to raise up to $350 million.

“If the market holds, we should be done with it soon,” one source said.

“Private equity investments through preferential allotment have a lock-in of one year, there’s more due-diligence involved and they also look for board seats,” said Jagannadham Thunuguntla, equity head of investment bank SMC Capitals.

“Institutional investors coming through the QIP route have no such hassles, it is also faster,” he added.

Indian firms, sparked by a more than 75 percent rise in the benchmark index .BSESN and nearly $13 billion in net foreign fund inflows into shares this year, have sold equity worth more than $15 billion, primarily to cut debt.

United Spirits’ loss-making group firm and airline operator Kingfisher Airlines (KING.BO), which is also looking to raise funds, could be a possible factor in PE firms being hesitant to invest in the company, said an executive with an investment bank which has worked with the group in the past.

United Spirits has pledged shares to secure loans for Kingfisher Airlines (KING.BO), its annual report showed.

Valuation, a major reason for the break-down of talks between it and Diageo [ID:nBOM325412], is another factor to watch out for as its margins come under pressure from a rise in molasses prices due to the poor sugarcane crop, analysts said.

Analysts expect a 400 basis points dip in operating margins in the first half of 2009/10 from rising molasses prices. A 1 percent hike in molasses prices impact earnings negatively by 2 percent.

Shares of United Spirits, valued at $2.1 billion, have risen just 3.3 percent so far this year compared to a 76 percent rise in the main index .BSESN. The Bombay stock market was closed on Tuesday for a local holiday.

By Janaki Krishnan and Narayanan Somasundaram
(Editing by Muralikumar Anantharaman) ($1 = 46.48 rupees)