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Weeks after Diageo declared that it will “vigorously” contest the claim by Vijay Mallya for failing to set up a joint venture, the multinational liquor maker has paid $135 million to a bank after Mallya’s company defaulted in making good the guarantee money.
In its interim report, Diageo pointed out that Diageo Holdings Netherlands B.V. (DHN) had issued a conditional guarantee to Standard Chartered Bank. This is in respect of the liabilities of Watson Ltd, a company affiliated with Mallya, under a $135-million loan from Standard Chartered. The guarantee agreement was entered into as part of the arrangements put in place and announced at the closing of the USL acquisition by Diageo on July 4, 2013.
DHN’s provision of the guarantee agreement enabled the refinancing of certain existing borrowings of Watson from a bank which allowed Diageo to take over certain USL shares held by the lender.
The facility (loan) matured and entered into default in May 2015. However, DHN and Standard Chartered agreed to extend the date for release of the guarantee amount to January 29, 2016, to allow more time for repaying the amount.
As part of this agreement, DHN deposited $135 million in an escrow account with Standard Chartered. As Watson could not repay the amount, an amount of $135 million which was in the escrow account got transferred to Standard Chartered Bank.
The underlying security package for this loan includes shares in United Breweries Ltd (UBL) and Watson’s interest in the joint venture that owns the Force India Formula One (F1) team.
DHN also has the benefit of counter-indemnities from Watson and Mallya in respect of its liabilities under the guarantee. DHN intends to also pursue claims under these counter-indemnities to seek to recover any outstanding amounts.
In another case, UB Holdings in a filing with the BSE said Punjab National Bank (PNB) has declared the company a “wilful defaulter’’ for its failure to repay the loan it had taken on behalf of the now defunct Kingfisher Airlines. UB Holdings had taken a loan worth about ₹800 crore from PNB earlier.
State Bank of India too, had declared some of the UB group companies wilful defaulter in November last year. SBI’s exposure is about ₹1,600 crore. While SBI’s claim has already been contested legally, UB Holdings in a filing with the BSE said it is planning to take legal action against PNB.
The total exposure of lenders is about ₹6,650 crore and including interest, it adds to over ₹7,000 crore.
UB Holdings’ shares closed 12.33 per cent lower at ₹19.90.
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