UB Group-controlled Kingfisher Airlines has brought down foreign stake in the company from around 53% to 49%, just within the prescribed foreign investment cap of 49% permitted in the airline business in India.
Last year, the foreign investment promotion board (FIPB) had raised objections to the United Breweries (Holdings) (UBHL)’s proposal seeking approval for raising Rs 708 crore by issuing fully convertible equity warrants to FirStart Inc, a company owned by UB Group promoter Vijay Mallya’s mother, Lalitha Mallya, and headquartered in the British Virgin Islands. The FIPB had found out that the move would result in FDI hike in the airline well above 52%, which is not permitted under FDI gudielines. Though, the board cleared the proposal,it directed the company to bring down the FDI within a specified time-frame.
According to the proposal, UBHL had plans to use the money from FirStart to invest in various UB Group ventures including Kingfisher Airlines (in which it owns 32.48%), McDowell Holdings (36.17%), Kingfisher Finvest and UB Infrastructure Projects (both wholly-owned) and UB Electronics (96.25%). Now it is learnt that the airline has managed to bring down the foreign investment by offloading some equity to the promoters, a source close to the development said.
When contacted, a UB Group spokesperson confirmed the development and said, : “ The effective overseas shareholding in UBHL has been brought below 50%, and so in accordance with the computations under Press Note 2, Kingfisher Airlines automatically becomes compliant".
UBHL had asked approval for issuing of 63,87,117 fully convertible equity warrants of Rs 1,110 each to FirStart Inc amounting to Rs 708 crore. Of this 19,71,218 equity warrants worth Rs 218.19 crore have been converted into equity and the rest will be converted later. Once the warrants are fully converted, FirStart Inc will hold 8.97% in UBHL and hence get proportionate equity in the downstream companies as well. The approval was sought “ex post-facto”, meaning the deal has been partially concluded.
The revenue department objected to the finance ministry regarding the proposal.First, it suspected that the proposal was primarily a loan given by Nexgen Capital Ltd and Standard Chartered Bank and was being routed through FirStart Inc as an investment in UBHL and, therefore, was not strictly FDI. Secondly, Vijay Mallya had extended his India-based funds as a guarantee for the Standard Chartered and Nexgen Capital loans. The department of revenue had argued that if FirStart defaults, the guarantor
in this case Mallya — would have to pay money from funds in India which implies that funds could flow out of the country.
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