Vijay Mallya is in the process of raising close to $1 billion by selling small chunks of his two big businesses: liquor and aviation. Japanese spirits giant Suntory is interested in acquiring a 10-15% stake in Vijay Mallya's United Spirits for about $600 million, The Economic Times reported today. USL had already been in negotiations with multinational giants Diageo, Pernod Ricard and Bacardi for a similar stake sale.
The USL stock is trading at Rs 1,402 in early morning trade on Thursday (up 6.6% over the closing price on Wednesday), valuing the firm at around $3.1 billion. A 10-15% stake at current valuations would translate into $310-465 million. This could mean Mallya is looking at huge premium but the he has a history of driving for hard bargains. In 2001, he had inducted Scottish & Newcastle as a strategic investor in his beer business at Rs 575 per share, against the prevailing stock price of Rs 130-140.
Further the deal would not lead to dilution in promoters holding. As the report points out Vijay Mallya is looking to unlock value from 13.7 million treasury stock — banked in a trust — that came out of the overlapping capital from the merger of group companies. The treasury stock accounts for 14-15% of the company's share capital, and placing these with a strategic investor will not dilute the promoter stake, which currently stands at 37%.
Unlike other global giants such as Diageo(who was earlier the frontrunner) and Pernod Ricard who have a presence in India and are looking for clarity on future management rights in any prospective deal with USL, for Suntory, this would be maiden India visit and the biggest overseas venture for the 110-year old Japanese firm. While no investment bank has been mandated for the deal, at least three banks are seen vying to take the process formal.
Aviation Needs Funding
On the aviation side Vijay Mallya is looking to raise upto $400 million for Kingfisher. While the plans have been there for quite sometime now, according to Business Standard, he may settle for structured finance such as sale and leaseback or securitisation of receivables instead of going for equity dilution given the low valuations of the aviation companies after the January market crash.
He is merging his unlisted airline firm Kingfisher Airlines into Deccan Aviation after he acquired it in 2007. The Deccan Aviation stock closed at Rs 88.25 on Wednesday, down 74 per cent from its all-time high of Rs 335 that it touched on December 19, 2007. The airline has largely been funding itself through sale and leaseback deals, cashing in on attractive aircraft deals it had entered into with Airbus, besides infusion from the group holding company.
He himself has gone on the record saying that the UB Group is talking to private equity players to raise about $400 million for the airline. With crude oil prices falling below the $100 a barrel mark, aviation sector can once again look for investors who have been worried in touching the sector due to spiraling costs.
Earlier in August, low-cost carrier SpiceJet announced an investment of $100 million from the US-based private equity firm WL Ross & Co LLC and Goldman Sachs Group Inc, with WL Ross investing over $80 million. A few specialised airlines investors such as Texas Pacific Group, Indigo Partners and Capital International are still keen on investing in India. Capital had invested in Deccan Aviation, which ran budget carrier Air Deccan before Mallya bought it.