Mallya under Sebi lens

Last Updated: Sat, Nov 03, 2012 04:57 hrs

Vijay Mallya's cup of woes is brimming over. The Securities and Exchange Board of India (Sebi) has asked the UB Group chairman and United Breweries Holding Ltd (UBHL) to give information on the recent share sale by three of Mallya's companies that led to a reduction of promoter holding in UBHL from 51.5 per cent to 43.09 per cent.

Mallya had sold 8.41 per cent stake in UBHL from June to September - a period when the the company's scrip was enjoying a dream run. However, no disclosure of share sale was made to the exchanges, in violation of Sebi's Takeover Regulations and Prohibition of Insider Trading Regulations. Under these rules, promoters have to disclose within two working days to the regulator and exchanges any change in shareholding pattern, if they are involved in buying or selling of shares.

Sources in the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) confirmed they had not received any disclosure regarding stake sale and that they had already asked the company to clarify on this. Sebi sources said the regulator might also issue a showcause notice to UBHL promoters, if their response was not satisfactory.

Promoter shareholding pattern in United Breweries, September 2012
Company June September
Mallya Pvt Ltd 3.62% 0.03%
Kamsco Industries 3.62% 0.03%
Gem Investment & Trading Pvt Ltd 1.60% 0.37%
Total promoter holding 51.50% 43.09%

UBHL is a holding company of Mallya's other firms United Spirits Ltd (USL) and Kingfisher Airlines (KFA). The UBHL stock price had rallied on reports that global spirits major Diageo might buy stake in USL.

UBHL holds 18.03 per cent in USL and would have been the main beneficiary if Mallya had managed to clinch the deal with Diageo.

An emailed questionnaire and SMSes sent to the UB Group spokesperson on Thursday did not elicit any response.

The UBHL scrip had seen a three-fold rise from its 52-week low of Rs 53 in June to touch a high of Rs 155 in September on the Bombay Stock Exchange (BSE). From July to September, Mallya sold stake in UBHL through three of his firms - Mallya Pvt Ltd, Kamsco Industries and Gem Investment and Trading Pvt Ltd - making around Rs 55 crore (based on the company's average stock price during the September quarter).

"Sale of any substantial holding must be followed by public disclosures under the takeover and insider trading regulations. Non-disclosure can have serious consequences, specially if it is deliberate," said Sandeep Parekh, founder, Finsec Law Advisors.

According to J N Gupta, founder of Stakeholder Empowerment Services, a proxy advisory firm, Sebi can issue a showcause notice and impose heavy penalty. "Now, the action should be at Sebi's end. This (non-disclosure of stake sale by promoter) is a serious matter and should not be allowed to pass without appropriate legal action or prosecution," said Gupta.

Both Gupta and Parekh are former executive directors of Sebi.

Diageo plc had been in talks with USL and UBHL on a possible transaction, following which UBHL's share price touched a 52-week high, even as there was no certainty on whether or not these discussions would lead to a deal. The USL share price, too, saw a near-four-fold rally - from Rs 450 in January to a high of Rs 1,424 on October 23 - on rumours of stake sale.

According to equity analyst S P Tulsian, the violation is serious as Mallya had confirmed he was in talks with Diageo to sell stake in USL. However, Tulsian said there were at least 100 companies that had failed to disclose the change in shareholding pattern, even in cases where open offers were triggered. "Many companies have escaped in the past five years for lack of adequate monitoring system. But Mallya's case is serious due to deal talks," he said.

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