United Spirits to sell stock as PE talks fail

United Spirits to sell stock as PE talks fail

The world’s third-largest spirits maker by volume is set to place shares with institutions (QIPs), three sources with direct knowledge of the deal said. “The market is good enough for a share sale. Why opt for a PE firm that buys at the same price and adds little value otherwise,” sources said.

Citigroup and UBS are among arrangers for the deal, which follows several months of talks with private equity firms Blackstone and Kohlberg Kravis Roberts & Co and Capital International.

Kingfisher factor
United Spirits has debt of Rs 6,500  crore ($1.4 billion), which it took partly to fund the acquisition of scotch whisky maker Whyte & Mackay, and has said it aims to cut this to Rs 4,000 crore by the end of March 2010.  In June, United Spirits sold treasury stock, carried on its books from past mergers and acquisitions, at an average Rs 900 a share to raise about $186 million, which it used to repay some of its loans.

It still has over 8 million shares of treasury stock which it can sell or issue fresh ones. Sources said United Spirits would opt for the latter. It got shareholders approval last month to raise up to $350 million.

United Spirits’ loss-making group firm and airline operator Kingfisher Airlines, which is also looking to raise funds, could be a possible factor in PE firms being hesitant to invest in the company, said an executive with an investment bank which has worked with the group in the past.

United Spirits has pledged shares to secure loans for Kingfisher Airlines its annual report showed. Valuation, a major reason for the break-down of talks between it and Diageo, is another factor to watch out for as its margins come under pressure from a rise in molasses prices due to the poor sugarcane crop, analysts said.