This flamboyant businessman has quit as chairman of United Spirits Ltd but his legal troubles are far from over as he owes a substantial amount to banks.
By Rajendra Bajpai
The King of Good Times, liquor tycoon Vijay Mallya, has got off his high horse and not for the first time. He has quit as chairman of United Spirits Ltd. (USL), the country’s largest liquor company, and appears to be caught in many legal tangles although he has been absolved of all personal liabilities by USL in which the majority shareholders are Diageo plc of London.
Mallya’s major stake is in United Breweries Ltd., India’s largest beer manufacturing company, in which the largest shareholder is Dutch brewing company Heineken. Many, if not most of his troubles, can be attributed to his personal style of high living.
WEALTH SQUANDERED
He was accused of improper and unfair financial transactions, which cost Diageo and USL dearly. For more than a year, the liquor magnate, who had inherited most of his fortune from his enterprising father, was under pressure to cut connections with USL in which he once had a majority stake. He gave in finally and said: “The time has come for me to move on and end all the publicized allegations about my relationship with Diageo and United Spirits Ltd.” Mallya now plans to spend more time in England where he has been living for the past six months.
But his legal troubles are far from over. He still owes considerable money to banks, estimated at `7,000 crore at one stage, although it is not clear whether all of it is his personal liability. Banks are in trouble too because they don’t know how to recover the money as Mallya has been denied future access to bank funds and declared a willful defaulter.
“He should be taken to task (for failing to return bank loans),” said Nitish K, an analyst with IndAsia Fund Advisors. It is unclear whe-ther he will ever be able to square up his account with banks. Nitish and other analysts believe Mallya’s misfortune began in 2003 when he set up Kingfisher Airlines. The airline provided excellent service and was highly regarded. Then came the impulsive purchase of low-budget Air Deccan which had carved a niche for itself with low fares that weaned away passengers from the Indian Railways.
Deccan had a loyal following among flyers but Mallya began to tinker with it, changing its name to Kingfisher Red. That confused many passengers because the original King-fisher was a full-service airline and charged higher fares.
Kingfisher Airlines’ fortunes began to nose dive and Mallya began conducting financial transactions which verged on the illegal. He did not pay aircraft lessors or airport and other charges and eventually stopped paying salaries to his staff.
HIGH LIVING
However, that did not stop him from living it up. He paid `14 crore to buy cricketer Yuvraj Singh for his IPL team, Royal Challengers Bangalore. He also flew his friends to cricket matches in South Africa and West Indies. He owns a personal jet, a yacht, an IPL cricket team and a Formula1 Race Team. His profligacy is legendary and perhaps a major reason for his downfall.
“He is in a big mess and I don’t think his troubles are over,” said Mahua Roy Chow-dhury of law firm Solomon & Roy. “I think he just overstretched himself.” She also blamed his acquisition of Air Deccan for his misfortune. “He mauled the brand. He did not maintain it. He took too much on his plate. He could have strategized better,” she said.
The shareholders of USL should finally feel relieved that Mallya has agreed to depart. “(It) brings to an end the uncertainty relating to the company’s governance as well the ambiguity relating to certain historical transactions that were voted down by the company’s shareholders in November 2014,” the company said in a statement.
The stock market welcomed the announcement with USL shares jumping six percent the day after the announcement.
It is unclear what Mallya will do after retiring to England. His son, Siddhartha, has shown little inclination of going into the family business. Chowdhury said whatever he decides, he will certainly be living comfortably with money made from his companies. In addition, USL has given him a $75-million handshake so that he does not interfere with the company or set up a competing business.
It remains to be seen whether the beer baron has learnt his lesson. However, his fall is a warning signal to other businessmen who take public money and shareholders
for granted.