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Kingfisher Airlines' troubles continue as Mallya won't use Diageo deal money for revival

UB Group Chairman Vijay Mallya has clarified that the money coming from Diageo deal will not be used to revive the cash-strapped Kingfisher Airlines. Instead, it'll be used to cut United Spirits' Rs 8,300 crore debt.

BT Online Bureau   New Delhi/Mumbai     Last Updated: November 10, 2012  | 14:10 IST

In one of the biggest stake sales by a domestic firm to a foreign company, UK-based Diageo Plc will buy a 53.4 per cent stake in Vijay Mallya-led United Spirits Ltd (USL) for Rs 11,166.5 crore in a multi-structured deal.

The development comes at a time when Mallya is trying to overcome financial problems in his grounded Kingfisher Airlines.

"This is not a sellout; it's my appreciation of needs... I have recognised the consolidation needs (of Diageo) and wholeheartedly appreciate it... I have not sold any family jewel but embellished it," Mallya said after announcing the deal.

Mallya stressed that the money received from Diageo will not be used to bail out the beleaguered airline.

FULL COVERAGE:Kingfisher crisis

Following the completion of the stake acquisition, which took six years to materialise, India will become the second-largest market for Diageo after the US.

Diageo Chief Operating Officer Ivan M. Menezes said: "India will become Diageo's second-biggest market after the US. India has the potential to become the largest market in the long term."

On initial receivables, Mallya said USL will get Rs 3,300 crore while Rs 2,400 crore will go to UBHL's account. When asked about the debt position, he said: "At present, USL has a debt of about Rs 8,300 crore. The money, which will come into USL, will primarily be used to reduce debt."

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Following completion of these agreements, Mallya will continue in his current role as chairman of USL and UBHL and will work with Diageo to build the USL business as the current consumer trends for premiumisation grow in India.

Shares of United Spirits closed Friday's trade 1.22 per cent higher on the Bombay Stock Exchange at Rs 1,359.70.

Some of the major inbound deals in the past - wherein a foreign company or its subsidiary had acquired an Indian entity - include BP's $9 billion acquisition of Reliance Industries' oil & gas assets and the acquisition of Cairn India by NRI billionaire Anil Agarwal led-Vedanta Resources for over $8 billion.

With inputs from PTI

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