United Spirits, is set to sell new shares worth about $300-350 million to institutions to help cut its debt, after efforts to sell a stake to private equity firms and Diageo failed.
The world’s third-largest spirits maker by volume is set to place the shares with institutions (QIPs) as early as this week, three sources with direct knowledge of the deal said.
“The market is good enough for a share sale. Why opt for a PE firm that buys at the same price and adds little value otherwise,” one source said. The sources declined to be named as they are not authorised to speak to the media.
UB Group Chief Financial Officer Ravi Nedungadi and United Spirits President Vijay Rekhi did not respond to emails sent to them for comments.
Citigroup and UBS are among arrangers for the deal, which follows several months of talks with private equity firms Blackstone and Kohlberg Kravis Roberts & Co as well as investment firm Capital International.
United Spirits has debt of 65 billion rupees ($1.4 billion), which it took partly to fund the acquisition of scotch whisky maker Whyte & Mackay, and has said it aims to cut this to 40 billion rupees by the end of March 2010.
Chairman Mallya said in early September he planned to cut the firm’s debt by end October.
Valuation, a major reason for the break-down of talks between it and Diageo, is another factor to watch out for as its margins come under pressure from a rise in molasses prices due to the poor sugarcane crop, analysts said.
Analysts expect a 400 basis points dip in operating margins in the first half of 2009/10 from rising molasses prices. A 1 percent hike in molasses prices impact earnings negatively by 2 percent.
Shares of United Spirits, valued at $2.1 billion, have risen just 3.3 percent so far this year compared to a 76 percent rise in the main index. The Bombay stock market was closed on Tuesday for a local holiday.