Diageo may not recover $135m loan to Mallya firm

Diageo may have to write off a US$135 million loan given to Vijay Mallya-affiliated Watson Ltd by Standard Chartered Bank where it acted as a guarantor.

Diageo has said it may not be ale to recover a US$135m loan from a VIjay Mallya-affiliated firm

The drinks giant – which acquired control of United Spirits Limited (USL) in 2012 – issued the guarantee to Standard Chartered Bank in order for Watson to release certain USL shares that had been lined up for purchase as part of the deal.

According to the company, the situation came about due to a default by Watson in May 2015 and Debt Recovery Tribunal (DRT) in Bengaluru.

As a result, the sale or transfer of UBL shares in June were prevented as part of the enforcement process of pending further orders following a petition by several banks led by State Bank of India.

The tribunal blocked the sale or transfer of shares to Diageo in June this year.

“Standard Chartered is required to take certain pre-agreed steps to recover from Watson prior to calling on the Diageo Holdings Netherlands BV (DHN) guarantee… In the event that DHN makes any payment under the guarantee, DHN would intent to pursue claims under these indemnities to seek to recover any outstanding amount,” Diageo said in its annual report of 2015.

“Under the terms of the guarantee, there are arrangements to pass on to DNH the benefit of the security package if it makes a payment under the guarantee of all amounts owed to Standard Chartered.”

In light of the situation, First Post reported that Diageo said: “In light of the litigation risk associated with the UBL shares and the potential loss of realisable value of the F1 security during enforcement, Diageo believes that the outstanding amount may not be fully recoverable.”

In April this year, board members of USL, in which Diageo owns a controlling stake, cast a vote of no confidence in Mallya and urged him to step down from his role.

It came about after an internal inquiry launched by Diageo into the firm’s finances, which uncovered a net loss of £445 million in its full-year 2013/14 results – attributed to a write down of the value of its Scotch whisky business Whyte & Mackay as a result of its sale to Emperador.

However, following Diageo’s 2014/15 financial results, the group’s CEO Ivan Menezes stressed the string of incidents had not affected its operations in India.