Monday, April 18, 2016

The Mallya Saga

The story goes back to December 1955, when Lalitha Ramaiah and Vittal Mallya became the proud parents of Vijay Mallya, in a small town of Karnataka called Bantwal. Vijay Mallya was an extremely prolific student and after receiving his doctorate in business administration from California Southern University, joined his father’s business and in 1984 became the chairman of United Breweries Group, which is the proud owner of the Kingfisher brand of beer.

It has been a rather successful career that this flamboyant businessman can boast of. He soon started “living life kingsize”, throwing glamourous parties and even published limited editions of the extremely elite but a rather saucy, kingfisher calendar. Vijay Mallya managed to build properties around the world in locations like Monaco, Scotland, USA, and across 3 cities in India. He even came to be known as the “Playboy of East”.

In 2005 Vijay Mallya set up Kingfisher Airlines which soon after started connecting 32 cities. Kingfisher Airlines in a couple of years became extremely popular and looked to moving into no-frills segment of air travelers and so invested in Air Deccan. It was then that the downfall of the Mallya Empire started.

How the Empire came crashing

  • The grounded Kingfisher Airlines:
Since 2012 Kingfisher Airlines had been facing severe financial crisis and the share of the company dropped to its lowest in April 2012. The DGCA (Director General of Civil Aviation) in India suspended its flight certificate in October 2012 and in early 2013 GOI withdrew both domestic and international flight entitlements allocated to the airline. The company thereby shut its operations and locked out its employees, many of whom hadn’t been getting salaries for the previous 6 months.

  • Meanwhile the Diageo and Heineken story moves on…          
Despite an insolvent Kingfisher Airline, Vijay Mallya continued to enjoy his lavish lifestyle and retained his position amongst India’s richest. His company United Spirits Limited has been the largest manufacturer of IMFL (Indian Made Foreign liquor) since 1951. By the time it was 2012, USL gradually came under majority ownership of a British multinational alcoholic beverages company, Diageo. Vijay Mallya took home a huge amount for the stake sale to Diageo. In 2015 Diageo demanded that Vijay Mallya quit as USL chairman against charges of funds diversion from the company, and soon after sold its shareholding in United Breweries to Heineken.

  • The Mystery of 9000 crores
Vijay Mallya had raised close to Rs.7000 crores from 17 banks for his now bankrupt Kingfisher Airlines. Since 2012 this loan has become a Non Performing Asset (NPA), with the largest borrowings coming from SBI (State Bank of India). For half a decade he has mocked the banks while flaunting his lifestyle. Now that all of India’s investigative agencies including ED and CBI are looking into the loan default, Vijay Mallya has fled India and parked himself in London.

As you read this blog, there are negotiations taking place between Vijay Mallya’s lawyers and the banks regarding settlements. As of 14th April, 2016, the offer from Vijay Mallya to the banks is Rs. 9,000 crore.While he had given a Personal Guarantee against his borrowings, most of his property is located abroad and therefore difficult to take custody of.

The cat and mouse game continues, and according to Economic Times, dated 31st March 2016, there are 72 similar companies in India with huge tranches of loan defaults, the primary being the Adani Group. Here’s hoping justice is delivered and Indian banks get back their money.

Ms. Monica Mor, Sr. Faculty, INLEAD

Image Courtesy: Google Images 

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