India: Enforcement Directorate rejects lenders plea to sell United Breweries shares worth RS2,000 crore

Dealing a blow to banks’ efforts to recover money from fugitive businessman Vijay Mallya, the Enforcement Directorate has rejected their plea to sell shares worth Rs 2,000 crore in United Breweries, two people aware of the development said. Dutch brewer Heineken is keen on buying the shares to strengthen its holding of the Indian beer market leader, the Economic Times reported on June 22.

Banks had sought release of the shares attached by the Enforcement Directorate but they have declined the request, said a bank official aware of the matter. “The share prices will keep on coming down. If we sell at a later date with a huge discount, then who is to be held responsible? Will the ED take responsibility,” the official asked.

State Bank of India, in a letter to the ED, had requested that it be allowed to sell the United Breweries shares pledged to the lender as surety against the loans taken by Mallya. It had offered to keep the proceeds in an escrow account until a final decision was made on where the money would go to. People involved in the matter said the state-run lender had also promised to sign an undertaking pledging transfer of the sale proceeds to the government if and when required. But, ED officials shot down the request.

Sources in the enforcement directorate said the government had the first right when someone laundered money outside the country and created ill-gotten wealth. The investigating agency also feels that the new Fugitive Economic Offenders Bill gave it a higher priority over the banks.

“The escrow account is not seen as a very reliable instrument and in any case the new Bill gives the government more heft in recovering the dues. It gives the government higher power over any other institution,” a top ED official said, seeking anonymity.

In May last year, the ED had taken possession of the promoter shares of UB Group companies pledged with banks by Mallya and a few other assets including bank deposits and properties. Banks and ED officials have since been unable to decide on the rightful owner of these shares.

“We should have till now disposed of these shares and recovered money as banks hold the first right on pledged shares as a charge was created while disbursing loans to Mallya and his companies,” said a banker who did not wish to be named. “But the ED went and confiscated these pledged shares. Now we are stuck in this rigmarole.”

Heineken, which holds 44% of the local beer maker, had proposed to buy Mallya’s shares from the ED, ET had reported on March 8. JM Financial, the investment bank appointed as an adviser by Heineken International, had also submitted a share purchase proposal to the agency. The shares pledged with banks are valued at over Rs 2,000 crore at current stock price of around Rs 1,280.

Mallya directly owns an 8.1% stake in United Breweries, while 3.7% is held by Mallya Private Ltd and another 10.2% by United Breweries Holdings. Some of Mallya’s shareholding was pledged to banks and the ED had confiscated all his holdings.

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