👀 How Vijay Mallya Could Acquire McDowell Holding
A company with assets over Rs. 1000 crores is going through insolvency for a Rs. 16.5 crore loan. And investors think Vijay Mallya could be behind this. Here's how.
Six years ago well-known bad boy billionaire Vijay Mallya left India for the UK after conducting a fraud worth Rs. 9,000 crores!Â
While India is still trying to recover some of this money, Mallya is allegedly trying to recover and get back some control over his previous companies.
At least that's what shareholders in McDowell Holding claim. Wondering why they feel this way? ReadOn!Â
📜 First, a Little HistoryÂ
McDowell Holdings was the investment arm of UB Group, the creator of the Kingfisher brand.Â
It owns stake worth Rs. 920 crores in United Breweries.
P.S. United Breweries is now owned by Heineken.
Now that you have all the facts let's get back to the story.
📚 The Story So Far
McDowell Holdings owed around Rs. 15 crores to Zuari Agro. But since Zuari wasn't getting this money from McDowell, it passed on the loan and the headache of collecting it to Sun Star Hotels in 2021.
Not only did Sun Star take on this loan, it loaned another Rs. 1.5 crores to the company in 2022.
But McDowell was unable to pay the previous and the current loans. So, off went Sun Star to insolvency court.
Now, insolvency proceedings could mean either the company would be liquidated (all its assets would be sold off) or some other company would take it over by paying off some of the debt amount or the company's net worth.
Both of these conditions were not good for the McDowell’s shareholders. For them it made no sense that a company with assets of around Rs. 900 crores would be liquidated or rescued for an amount as tiny as Rs. 16.5 crores.
So, they tried to do the reasonable thing. Minority shareholders who own about 15% stake in the company came together to pay off the company's debt to Sun Star.
Here's where things got crazy.
For the first time in history, a creditor refused to take payment for the loans.
No, Sun Star wanted the insolvency proceedings to go through.
That's when investors felt ki daal me kuch kaala hai.
They think this is Vijay Mallya's way of getting control of the company back. Umm, how?
They feel Mallya wants another company to come and rescue McDowell, and then he could merge with that company or wrest control of McDowell from it and get stake in United Breweries.Â
In fact, this isn't something new. Promoters often use related parties or connected companies to buy back their company for much cheaper during insolvency proceedings.
Just look at the IDBI bank-Siva Industries case.
Siva Industries had borrowed Rs. 5,000 crores which it failed to pay back. When IDBI Bank took the company to insolvency court, it found no rescuers. Liquidation of the company wouldn't give them enough money. So, they settled for a one-time settlement of Rs. 500 crores from Siva Industries' promoters.
The bank lost precious time and money, while Siva Industries just saved Rs. 4,500 crores.
🤔 What's Happening Now?
Mallya has claimed he does not know Sun Star or have any involvement with the company. The same statement was repeated by Sun Star.Â
But the extra Rs. 1.5 crore given by the company to McDowell this year suggests otherwise.
You see, Sun Star took on the loan back in 2021. But it wasn't able to drag McDowell to court at that time because of Covid. The law claimed no company would be able to take on a corporate debtor to court at the time.
Which is probably why it extended an extra loan to the company, allowing it to take it to court.
Seems sketchy, right?
Moreover, unlike other companies facing insolvency, McDowell didn't put up much of a fight. It just gave in. It did not appoint board members at the right time ( a company needs to have three active board members, McDowell has two), because of which its shares were delisted from stock exchanges. Otherwise shareholders could just buy additional shares and give the company enough money to pay off the debts.
All of this has made shareholders very suspicious.
In the meantime, a company called Phoenix Theme Infra Projects has suggested a debt resolution plan for the company, which has been approved.
The plan, however, will be detrimental to shareholders as it amounts to only a fraction of the company's actual net worth. It will also mean that shareholders will lose rights to the shares of United Breweries that McDowell owned, as the company will change hands.Â
Though shareholders are trying to fight this decision in the Supreme Court, it is going to be tough for them to prove any actual fraud and get the decision reversed.
That's because there is no actual evidence of fraud yet.
But fraud or no fraud, the move will be bad for shareholders. We will have to wait and watch if they can activate their inner detectives and actually find some clues of a fraud.Â
âš¡In a line: Vijay Mallya could be orchestrating an elaborate fraud to win over some stake in his old company.
💡Quick question: Do you think Mallya is involved in this fraud or is someone else pulling the strings?
🤓 Noob's Corner: Insolvency is a financial condition where a creditor claims that a company cannot pay back its loan. Bankruptcy is when a company or a person themselves announce that they are unable to pay their loans.Â
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