United Spirits Ltd (USL) has approved the issue and allotment of 1.4 crore equity shares at Rs 1,440 a share to Relay BV, an indirect wholly owned subsidiary of the world's largest distiller Diageo Plc on a preferential basis. After this allotment, Diageo will have little over 10 per cent stake in USL.

The next step will entail USL group subsidiaries and trust selling close to 6.5 per cent to the European liquor major. With this Diageo’s total stake in the company is expected to increase to 27.44 percent, as per the original deal.

With this preferential issuance, USL will get Rs 2,093 crore, which will be used to offload its high debt on its balance sheet.

Analysts have mixed reviews on the development. An analyst with a domestic brokerage said, “With this successful allotment, the likelihood of the deal completion is very high. If the deal goes through, it is in the best interest of all the parties.”

In November last year, the deal was sealed on the terms that Diageo will acquire 27.44 per cent stake in USL at Rs 1,440 a share through a three-stage process. Of these, the first two stages have been cleared. The first step was the direct acquisition of 12.8 per cent stake from United Breweries Holdings and other companies. The second was the purchase of 10 per cent stake through preferential allotment of shares from USL trusts and group subsidiaries.

Diageo also had the option to increase its holding by another 26 per cent which fell flat on the face, as only 58,668 shares (less than 0.1% of USL shares) were tendered during the open offer process.

This was due to the fact that when the open offer was made, the stock’s value had already crossed Rs 2,000 per share.

On Monday, USL’s scrip closed at Rs 2,513.55 per share, down 2.18 per cent. During trading hours the share touched a high of Rs 2,605 per share on the BSE.

The USL stock was making news on Monday as Srei Infrastructure Finance, which has exposure to 4.9 million shares of USL, decided against selling them to Vijay Mallya for Rs 1,440 per share.

Some sources had indicated that Srei, which holds close to 4 per cent, could sell its shares to the company at Rs 1,440 per share.

Hemant Kanoria, vice chairman and managing director, Srei Infrastructure Finance, said, “The investment in USL shares is led by a debt fund which is a 100 per cent subsidiary and Srei is managing it. It invested last year and as per the signed agreement the shares can be sold only after the investment period. We are not selling anything right away as there is no urgency to sell and we will do it at an appropriate time.” 

Last year, ICICI Bank had offloaded its debt exposure of close to Rs 430 crore to a debt fund managed by Srei Venture Capital Ltd by selling 4.9 million shares.

Sources also indicate that Diageo is not keen to increase its share once it reaches 27.44 per cent and will take the wait and watch approach for increasing its stake.

Some international brokerages have downgraded the stock to neutral as there has been no material change in either sales or growth of the company.

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