Did Diageo help Mallya move out 4,000 crore?

Bangalore: The Karnataka high court's order annulling Diageo's acquisition of shares in India's largest distiller, United Spirits Ltd from Vijay Mallya's UB Holdings Ltd (UBHL), landed the British drinks giant in a tight spot two weeks ago (reported by TOI). But a detailed order publicly available now—may prove to be more embarrassing for Diageo, which is listed on the London and New York stock exchanges.      The division bench order, saying the deal-making was not bona fide since UBHL was facing allegations of fund diversions to tax havens, has questioned Diageo's loan guarantees to an offshore Mallya entity which owns F-1 team Force India. The court said the structuring of the deal  adversely impacted UBHL's creditors and the right of the purchaser (Diageo) would be decided by the winding-up petitions filed by them.      The 173-page order has opened a Pandora's box for Mallya and Diageo after the HC bench accepted and heard a clutch of winding-up petitions filed against UBHL, a parent of Mallya's diversified empire and a significant stakeholder in the grounded Kingfisher Airlines Ltd. UBHL is also the primary guarantor to various KFA creditors, including BNP Paribas, Rolls Royce & Partners Finance and Avions. 'FUND DIVERSION'  Karnataka HC had annulled Diageo's buyout of shares in USL from UBHL. Order says deal-making wasn't bona fide as it involved parallel transactions  Mallya 'diverted' 4,000 crore to subsidiary in tax haven British Virgin Islands  HC queries Diageo-backed 840cr 'loan' to Force India Mallya didn't come to court with clean hands: HC  Bangalore: The Karnataka high court, which has annulled Diageo's acquisition of shares in United Spirits, has taken cognizance of a $135 million (around Rs 840 crore) guarantee given by Diageo Holdings Netherlands BV to Watson Ltd, an offshore Vijay Mallya company which controls the Force India Formula-1 Team. Diageo executed the guarantees for a financing deal from Standard Chartered Bank.      Terming it a parallel transaction, the court said this substantial benefit availed by Mallya is liable to make him accountable to UBHL creditors. This, the HC pointed out, happened even as UBHL and its promoter Mallya had 'not come to the court with clean hands'—in reference to a possible diversion of Rs 4,000 crore to a subsidiary in British Virgin Islands, a tax haven. It ruled that UBHL's explanation (that these funds were remitted overseas for financing Whyte & Mackay acquisition in 2007) was 'unacceptable', and that the matter needed further investigation.      When contacted by TOI, a UB Group spokesperson said: "UBHL admittedly is not a party to the transaction involving Rs 4,000 crore. It was a legitimate remittance made through normal banking channels by USL to its subsidiary to repay a loan taken from Citibank for the acquisition of Whyte & Mackay. As for the transaction relating to Watson Ltd, once again UBHL admittedly is not a party to the transaction. However, a loan has been legitimately advanced by Stanchart to Watson on the strength of its creditworthiness. In respect of this loan, a backstop guarantee has been issued by Diageo in favour of Stanchart—all legitimate transactions carried out after appropriate disclosure."      The court order said, "UBHL has vaguely attempted to justify this for discharging the Whyte & Mackay liability, without proper explanation or supporting documentation." It added that the sale to Diageo should not have been permitted, pending a final investigation into the issue. "Such diversion of Rs 4,000 crore was bound to have an indirect impact on UBHL and its general creditors," it said.      Sanjay Jain, a director at Taj Capital, a New Delhibased investment advisory firm, said, "It appears from the order that commercial details of the deal between Diageo and the UB Group in public domain were inadequate. USL's shareholders approved the sale of treasury stock and preferential allotment (at Rs 1,440 per share) based on public disclosures. One cannot understand how Diageo carried out an acquisition in a listed Indian company with such disclosures."      "Diageo continues to believe that its purchase of USL's shares is genuine and bona fide, and that the acquisition price of Rs 1,440 per share paid to UBHL is fair and reasonable. Diageo intends to appeal the decision and will also consider other options open to it to defend its position," a Diageo spokesperson said.