Investigation launched as USL loses £445m

After a string of delays, United Spirits has revealed net loss of £445 million as new majority owner Diageo orders an inquiry into loans paid out by the Indian company.

A writedown in the sale of Whyte and Mackay and loans allegedly given to Vijay Mallya’s Kingfisher Airlines has have impacted United Spirits’ full-year results

United Spirits Limited (USL), which was acquired by UK drinks giant Diageo in a £1.1 billion deal earlier this year, attributed the significant decline due to the large writedown on the sale of its Whyte & Mackay Scotch whisky business, purchased by Philippines-based spirits producer Emperador for £430m.

The group’s full-year financial results for 2013/14 were published yesterday after extensive delays due to questions surrounding loans of around £140m issued to its previous parent company UB Holdings, owned by Indian liquor baron Vijay Mallya, believed to be for its beleaguered Kingfisher Airlines.

While Mallya remains chairman of USL despite its majority acquisition by Diageo, his seat has now been thrown into question after he was declared a “wilful defaulter” by the United Bank of India (UBI).

The bank claimed that Mallya had purposefully not paid an emergency overdraft lent to him to support his grounded Kingfisher Airlines despite having the means to, meaning he is now prohibited from accessing banks and capital markets for funding needs.

According to The Financial Times, Diageo – which owns a 55% controlling share in United Spirits – has now authorised, along with the United Spirits board and CEO, a “a detailed and expeditious” inquiry into whether company cash had been “improperly advanced” to UB Holdings prior to its takeover.

This recent loss represents further struggles for Diageo in the emerging markets. In its own full-year financial results, the group was forced to writedown the value of its Shiu Jing Fang baijiu brand by £264m due to continued declines in the Chinese market.

With regards to the writedown of Whyte & Mackay, Mallya initially paid £525m million for the company, and so its £430 million purchase by Emperador was not sufficient to offset initial loans.

USL decided to sell Whyte & Mackay over competition concerns raised by the UK’s Office of Fair Trading (OFT) which stunted its majority takeover by Diageo.

It writedwon combined with loans given to UB Holdings and provisions relating to Diageo’s takeover have contributed to USL’s £445m net loss.

United Spirits produces the world’s second-largest whisky brand McDowell’s No.1, as well as the Bagpiper and Hayward’s Fine Indian whisky brands.