06 November 2017

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Paradise Papers reveal connection of Vijay Mallya and $1.5-billion debt

Paradise Papers reveal connection of Vijay Mallya and $1.5-billion debt
Paradise Papers show that after Vijay Mallya sold his United Spirits Limited India (USL) to the Diageo group in 2013, Diageo approached a London-based law firm Linklaters LLP to undertake a massive restructuring exercise to simplify the complex group structure created by Mallya.

Diageo approached Linklaters LLP for the restructuring process, the law firm in turn approached Appleby and sought assistance in getting authorizations for the Mauritius-based Watson Ltd to complete the transaction.

Appleby documents confirm Diageo’s intent: “the purpose of the Reorganization is to settle the inter-company loan balances.”

Documents from Appleby, which worked with Linklaters on the restructuring, show that funds amounting to over $1.5 billion were funneled, as debt, into four subsidiaries over a period of seven years till 2014.
Names of Four subsidiaries –
1-USL Holdings Ltd (BVI), an entity in a tax haven (British Virgin Islands);
2-USL Holdings (UK) Ltd;
3-United Spirits (UK) Ltd
4-United Spirits (Great Britain) Limited (UK)

Diageo undertook a restructuring process to get rid of these intermediate subsidiaries and so, effectively, ended up waiving the $1.5-billion debt owed by above four subsidiary companies.

As part of the restructuring, records show, Diageo also absolved Watson Limited, an entity owned by Mallya in his personal capacity, of its dues to a USL group company to the tune of 4.4 million pounds (around $5.8 million) through an exercise called novation — substituting one party in a contract with another, or replacing one debt or obligation with another.

The $1.5-billion loan waiver and the novation seems to have resulted in Mallya taking away much more than the Rs 1,225 crore that Diageo reported to BSE – the amount actually works out to around Rs 10,000 crore going by Appleby documents.

a Diageo spokesperson said that as per March 31, 2015, it had granted interest-free loans in foreign currency amounting to Rs 4,941 crore and Rs 4793 crore in 2014 to USL Holdings Limited (BVI), a subsidiary, for acquisition of long term strategic investments. most this loan formed part of the company’s net investment in the subsidiaries. “As the borrowing entity had no operating income/cash flows to repay, the settlement of these loans was neither planned nor likely to occur,”

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Tags – Paradise Papers Vijay Mallya United Spirits Diageo