United Spirits gets notice for books inspection, makes fresh provision over UB Group loans

India's top liquor maker United Spirits Ltd (USL) said it has received a notice from the Ministry of Corporate Affairs for inspection of its accounts besides a separate income tax department notice, as it continues to battle holes in its balance sheet partly created by loans to erstwhile promoter UB Group’s firms.

USL did not share further details on the notices but said it is cooperating with the authorities.

This comes as another trouble for London-headquartered Diageo that bought 54.78 per cent stake in the firm after completing a revised open offer last July, having shelled out around $3 billion in total. It is embroiled in a boardroom battle with Vijay Mallya besides facing a huge hole from alleged financial irregularities over loans to UB Group firms.

Meanwhile, USL made an additional provision for loans to UB Group firms besides accounting for diminution in value of subsidiaries and other loans and advances, it said on Wednesday as part of its financial statement for FY15.

It accounted for Rs 995.46 crore over the remaining principal portion of UB Group loans, provision related to now divested Whyte & Mackay (Rs 184.85 crore), diminution in value of subsidiaries (Rs 361.81 crore), loans and advances to subsidiaries (Rs 354.35 crore) besides some other provisions.

As a result, it has reported a net loss (standalone) of Rs 1,800 crore on net sales of Rs 2,020 crore for the quarter ended March 31, 2015. For the full year, it reported consolidated net loss of Rs 1,687 crore and sales of Rs 9,159.4 crore.

USL scrip shed 3.6 per cent on NSE on Wednesday and was down a further 1.7 per cent on Thursday morning.

The firm also made some additional disclosures related to the investigation report over irregularities in financial decisions under UB Group.

The inquiry report has indicated that the manner in which certain transactions were conducted, prima facie, indicates various improprieties and potential violations of provisions, inter alia, of the Companies Act, 1956, and the listing agreement signed by USL with various stock exchanges in India on which its securities are listed.

Although the report has not been made public nor the firm has named the people mentioned in the report, P A Murali, CFO of USL who had spent nearly three decades with the UB Group, quit a day before the inquiry report was tabled in April.

As first reported by VCCircle, at least three more senior personnel of USL, who have been veterans with UB Group, are expected to leave the company shortly.

During 2011-2013, USL had lent Rs 1,337.4 crore to UB Group firms. The inquiry report found that some of these involved irregularities and the money was diverted to now defunct UB Group firm Kingfisher Airlines.

Besides providing loans to directly to UB Holdings, it also lent to third-party bottlers. The bottlers are now claiming that they have, in return, lent this to other UB Group companies and they will pay back the sum of close to Rs 600 crore to USL only when they get back the money from UB Group companies.

In FY14, it had made a provision of Rs 649.55 crore of which Rs 330 crore was to account for part of the principal loan to the UB Group firms.

Diageo is now looking at ways to see how it can recover these dues from UB Holdings, the public listed holding firm of UB Group.

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