USL to declare itself ‘sick’ as value plummets
Diageo-controlled United Spirits will ask shareholders to approve a resolution declaring the company ‘sick’ after its peak net worth plummeted by 86% over the last four years.
McDowell’s No.1 maker United Spirits may declare itself ‘sick’USL, the largest alcoholic drinks producer in India, has scheduled an ‘extraordinary general meeting’ on 22 January when it will ask shareholders to approve the company’s position under the Sick industrial Companies Act 1985 (SICA).
The act requires any company whose net value has fallen by 50% or more over the past four fiscal years to report its position to the Board for Industrial and Financial Reconstruction (BIFR), which will then help revive the firm.
As of 31 March 2015, USL’s net worth fell by 86.3% (£554 million).
The board of directors is required to forward to all shareholders a report outlining reasons for the significant value erosion ahead of the extraordinary AGM.
USL, maker of one of the world’s biggest whisky brands McDowell’s No.1, blamed a drop in value of its long-term investments, loss on the sale of its subsidiaries and manufacturing units, the provision of “doubtful debts”. The factor which contributed to the greatest erosion of value was identified as “provision on advances to United Breweries”, former parent company of USL.
“The company believes that the provisioning mentioned above is mainly due to exceptional factors and does not reflect upon the long-term prospects of the company,” a statement by USL reads.
The firm’s profitability has “improved” over the past two quarters as the world’s largest alcoholic drinks group Diageo continues to reshuffle its operations.
Following a series of protracted negotiations, Diageo completed its acquisition of a 55% controlling stake in USL in July 2014.
Last April, USL board of directors issued a vote of no confidence in billionaire chairman Vijay Mallya and called on shareholders to remove him from his position.
The board’s vote was cast following the outcome of an internal inquiry into USL’s finances, which saw £445m net loss in 2013/14.
Mallya has been embroiled in controversy after the inquiry found funds been “diverted” to UB Holdings, in which Mallya is a shareholder. The chairman has so-far managed has retained his role and oversaw a USL annual general meeting in November.
