World's largest liquor company Diageo Plc is all set to hold back the remaining $35 million of the $75 million it had agreed to pay Vijay Mallya as part of a settlement. Sources in the know said the company will instead seek to recover dues from the absconding businessman. Maker of Johnnie Walker scotch and Smirnoff vodka, Diageo paid $40 million of the settlement that was reached last year after Mallya agreed to walk away from United Spirits. Remaining money was to be paid in two equal instalments over the next few years.
The sources said, “The remaining $35 million will not be paid now. The decision to not honour the deal signed with Mallya is also on account of charges of various financial misappropriations from USL and fund diversion by him.” When the company acquired control of USL in 2012, it issued a guarantee to Standard Chartered against Watson Ltd, a company affiliated with Mallya. The British liquor company will also claim Mallya's stake in the Force India Formula One team that had been pledged as security for Watson. It now has the benefit of counter-indemnities from Watson and Mallya in respect of its liabilities under the guarantee.
The Indian unit of Diageo filed several complaints against Mallya after inquiries uncovered “improper transactions” worth £122.53 millione. USL said Mallya had diverted the funds to nearly half-a-dozen companies in which he had a direct or indirect interest, mostly located in tax havens. The move won't have any material impact on USL except that it might reduce some overheads such as legal costs in the future, believes senior vice-president at Edelweiss Securities, Abneesh Roy.
For Diageo, India now accounts for almost 40% of sales volume and 9% of net sales. India is the largest whisky market in the world, selling almost 200 million cases. However, there is a stark difference between volume and value with the average retail price per 750 ml in the rest of the world being more than five times that in India. Hence, Diageo has been driving premiumisation as the prestige and above segment is also where most of the spirits industry profit pool is - it is expected to contribute 70% of spirits industry profits by 2021.
