Kingfisher Beer Europe to look for alternative avenues to replace credit line

Beleaguered businessman Vijay Mallya's troubles with lenders do not seem to be limited to India, with global banking major RBS (Royal Bank of Scotland) planning to terminate next month a credit line and all other banking services provided to his European beer venture.

This has forced Kingfisher Beer Europe Limited, owned by Mr Mallya through a complex web of entities, to look for alternative avenues to replace the credit line and other banking facilities provided by RBS.

Mr Mallya-led UB Group runs its overseas brewery business through California-based Mendocino Brewing Company, which sells a number of beer brands including Kingfisher in the US, while operations in other countries are conducted through wholly-owned subsidiary United Breweries International (UK) Ltd and step-down unit Kingfisher Beer Europe Ltd (KBEL).

Mendocino has Mr Mallya as its chairman and it is owned by his UB Group through a complex shareholding structure.

He has tried to keep the foreign operations separate from his troubled ventures in India, where a major controversy has broken out ever since he left the country amid growing clamour for recovery of dues totalling over Rs 9,000 crore of the long-grounded Kingfisher Airlines.

Mr Mallya and his group firms are also being probed by multiple regulators and agencies including Sebi (Securities and Exchange Board of India), Enforcement Directorate and SFIO (Serious Fraud Investigations Office).

As he has been evading repeated summons issued by the Enforcement Directorate, the government has now suspended his diplomatic passport.

In disclosures made to the US market regulator, Mendocino said Royal Bank of Scotland Commercial Services Limited (RBS) had provided a $2.8 million revolving line of credit over a decade ago in April 2005 to KBEL.

The credit line carries an interest rate of 1.38 per cent above the RBS base rate and a service charge of 0.10 per cent of each invoice discounted.

However, KBEL received a notice late last year from RBS regarding the bank's intention to terminate the credit line with effect from February 26, 2016.

RBS also informed KBEL of its intention to terminate all other banking services it was providing to the company, with effect from the same date. RBS subsequently extended the termination date to April 29, 2016.

In a regulatory disclosure, Mendocino said, "On March 29, 2016, KBEL received a further extension of the termination date to May 31, 2016. The amount outstanding on the Credit Line as of September 30, 2015 was approximately $813,900 (over Rs 5 crore)."

"KBEL is in discussion with third parties to find alternative financing to replace the Credit Line and other banking services presently provided by RBS."

In another filing, Mendocino said, "We have engaged in discussions with a bank which provided an indicative offer to provide a replacement for the RBS line of credit."

"If KBEL does not finalize such alternate financing and provision of banking services, and if KBEL is unable to find a substitute replacement before termination of the RBS facilities, this would have a material adverse effect on KBEL and the Company," it added.