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Absconded Mallya arrested by UK police in London

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Mumbai, 18 April, 2017 (GPN) : Vijay Mallya, the boss of the now defunct Kingfisher Airlines, has been arrested by UK police in London. The liquor baron is being taken to Westminster court, reports say.
Mallya, whose extradition India has been seeking since he fled to the United Kingdom in March last year, is wanted in various cases of foreign exchange violation and debt recovery. India has handed over a formal request to the British High Commission for his extradition.
Mallya left India on March 2, 2016 for London, days after a consortium of 17 banks moved the Debt Recovery Tribunal to hear a July 2013 petition to recover dues of Rs 9,081 crore, including interest, that was loaned to his now defunct Kingfisher Airlines.
Mallya has since offered to negotiate with the banks for a one-time settlement of dues and sought the Supreme Court’s intervention.
Banks had previously shot down Mallya’s offer of Rs 6,868 crore in April 2016 to settle the dues.
Last week, a Delhi court had issued an open-ended non-bailable warrant (NBW) against the liquor baron in case of alleged violation of the Foreign Exchange Regulation Act (FERA).
MALLYA’S JOURNEY FROM ‘THE KING OF GOOD TIMES’ TO ‘THE KING OF VIOLATERS AND EVADERS IN RECENT TIMES’
His companies collectively owe a consortium of state-owned banks Rs 9,091 crore. Mallya exited the airline business in 2012, a major part of his liquor business in 2016 and, finally, exited the country on March 2 for the UK, waving his diplomatic passport, one of his perks as a Rajya Sabha MP. He is now believed to be living in a sprawling 30-acre country home in Hertfordshire, 46 km north of London.
“His father Vittal Mallya laid the foundation for UB’s grip on the market which he had established after owning McDowell’s Ltd from its British owners who had hastily exited newly independent India. UB was the clear market leader in both beer and spirits (brandy, rum, whisky, gin, vodka). The UB Group was the biggest beneficiary of liquor becoming more acceptable and changing social mores. Its strong liquor business absorbed all the shocks of VJM’s fancies…but it rarely translated into bumper profits for its shareholders.”
In November 1998, newspapers across the country carried a piece of news prominently, that ‘liquor baron’ Vijay Mallya had donated 32 kg of gold and 1,900 kg of copper for gold plating at the sanctum sanctorum of the famed Sabarimala Ayyappan temple in Kerala, at a cost of Rs 18 crore.
What many people had missed that year was a small footnote in resolutions being passed at that year’s AGM (Annual General Meeting). The funds for that exercise had actually come from the UB Group and not from Mallya’s personal wealth. When an agitated shareholder speaking at the AGM-held at Chowdiah Memorial Hall in Malleswaram, Bangalore-noticed the fine print and demanded why the bill for the donation was being passed onto the company, he was initially shushed down by Mallya’s men strategically placed around the hall. When the shareholder persisted, Mallya declared it was because “liquor was a very tough business to be in and, the donation had been done to seek divine blessings on behalf of all shareholders”.
This incident was narrated to GPN by a former UB shareholder who exited the company in 2007 after witnessing such incidents. The shareholder who declined to be identified said he did not think very highly of corporate governance practices at the company. “Most managements play around with minority shareholders and that is a risk one takes when investing. But the increasingly erratic diversifications made me sell my shares after 12 long years. I got out in good time.”
While except for the Berger Paints & MCF acquisitions, none of the other diversifications paid out significantly for either Mallya or for the UB Group, he made a record of sorts by entering and exiting 32 businesses in as many years (see graphic). He had his father’s foresight in spotting an opportunity, but lacked the diligence to follow it through.
However, the liquor empire assiduously built up by the senior Mallya generated a force field of cash that shielded his business forays. In 2012, his spirits empire had a Rs 9,187 crore turnover and gross profit of Rs 1,060 crore. Likewise his beer empire had a turnover of Rs 5,800 crore and gross profit of Rs 465 crore.
In 2003, Mallya leapt into a new venture: politics. His only experience in this was dealing with multiple state governments to ensure he was in their good books to “manage the system”.
On July 23 that year, he had a providential escape. The chopper he was flying in with Sanjay Khan crash-landed at Bagalkot, 400 km north of Bengaluru. Mallya escaped without a scratch because the machine crashed into a slushy field. It foretold the fate of his fledgling political party, the Janata Party, which he relaunched that year. It drew a blank in all 224 assembly seats they contested in 2003. He chose the Rajya Sabha route to enter politics in 2004, an independent supported by the Congress and Janata Dal (Secular) led by former prime minister H.D. Deve Gowda. For his second term in 2010, the BJP and the JD(S) helped him. “He took care of everybody,”says a former director of USL and long-time Mallya friend who chose to speak off the record.
Mallya chose historical artefacts to raise his profile-forking out ?175,000, 10 times the reserve price, for Tipu Sultan’s sword in 2004, and acquired Mahatma Gandhi’s glasses and sandals-for $1.8 million in 2009.
His December birthday parties either on his luxury yacht The Indian Empress-which he had bought from the Qatari royal family-or at the ‘Kingfisher Villa’ in Goa, were a must-attend. Guests would be flown in on private jets. Mallya revelled in the ‘King of Good Times’ title but preferred to be addressed as Dr Mallya, for his doctorate in business administration from an online only degree mill in the United States. Mallya had acumen- the ability to think big and fulfil his ambitions or dream with audacity and panache. Behind the flamboyance, there was a shrewd business plan. With liquor companies not able to advertise their products, he used his foray into other ventures as a major brand-building exercise of which he was the best ambassador. By starting Kingfisher Airlines, acquiring an IPL cricket team called Royal Challengers, promoting Formula 1 racing and bringing out the Kingfisher calendar with bikini-clad models, he was promoting his best liquor brands and giving them an image of being racy, top of the line, exciting to be associated with-all the imagery needed to raise the level of spirit sales to stratospheric heights. But the man who had fashioned himself as a desi Richard Branson had no illusions about who the biggest brand was.
“I live my brand. I’m the best ambassador for my brand. It doesn’t matter which one works as long as the brand works,” Mallya said in an interview with GPN.
But none of this, not the fancy houses on four continents, the vintage cars, personal jets, race horses, cricket teams, yachts, could have brought him down if he had not taken that one step, says a former USL director.That fatal step was the plunge into aviation, a move that would prove to be his nemesis. Mallya’s first brush with aviation was in 1990 when he launched UB Air’s ‘scheduled operator’ service between Bangalore and Mangalore. It was swiftly abandoned. The market, he felt, was not ready.
In 2005, aviation was hailed as India’s sunrise sector even though it ran contrary to global experience. Few airlines made money and operated in highly regulated environments and state-operated carriers. A.K. Ravi Nedungadi, former Group CFO of UB and current UB director, had in the past told GPN he “had strongly advised against entering aviation”.
Vijay Mallya, aged four, had received a motor car as a birthday gift from his disciplinarian father. Now, ‘VJM’, as close colleagues call him, was determined to present a life-changing gift to his son and business heir Siddharth, his son from his first marriage to a former Air India air hostess, Samira Tyabjee. He would gift Siddharth an airline. True to his promise, Kingfisher Airlines flew on May 9, 2005, two days after Mallya junior’s 18th birthday. Earlier, on March 20, he had bought Shaw Wallace Distilleries from Vidya Chhabria for Rs 1,251 crore, making the UB Group the second-largest liquor maker after Diageo.
Mallya launched a full service airline which would not only compete against established players like Air India and Jet Airways but also low-cost airlines like Air Deccan and Indigo. He started offering prices like a Rs 3,600 Delhi-Lucknow ticket, which was simply unsustainable. “In this business, cheques fly faster than aircraft,” Capt G.R. Gopinath, who ran Air Deccan, told GPN earlier.
Kingfisher started bleeding money.Mallya acquired the struggling Air Deccan in 2007 to circumvent government regulations of an airline having to operate for five years and have 20 planes before being allowed to fly abroad. Nine months later, in September 2008, Kingfisher began international flights. “Bringing two donkeys together cannot make them run as fast as a horse,” says a former UB director. “Unfortunately, VJM did not realise it…the problem with him is, once he makes up his mind, it’s difficult to make him change it.” The loss-making Air Deccan only further added to the woes of a bleeding Kingfisher. In 2008, Kingfisher and Air Deccan together reported losses of Rs 1,602 crore. The cultural mismatch between Kingfisher and Air Deccan belied efforts to rebrand Air Deccan as Kingfisher Red. Even as his aviation business continued to lose money hand over fist, in 2012-13 on income of Rs 683.4 crore, Kingfisher made losses of Rs 4301.2 crore. Mallya kept pumping money, borrowing by pledging his holdings in other group companies, providing for intra-group loans and providing personal guarantees.
Malls sighted,”The growth prospects in aviation are humongous,We are talking 270 million passengers by 2020. India is going to be the fourth largest domestic aviation market in the world.”
Then, in 2012, global oil prices went through the roof. Jet fuel prices in 2012 were at $3.26 per gallon (it is just 93 cents per gallon today), the already high taxes on aviation turbine fuel-50 per cent more than the international price-made it the worst major economy in the world to own an airline.
Kingfisher today owes over Rs 9,000 crore to its lenders, employees and suppliers. “It was just a combination of circumstances. If only he had ring-fenced the aviation business without compromising his other interests; if only aviation fuel price had not gone through the roof; if only regulations were a little more friendly…what is the use now of saying ‘if only’,” sighs a Mallya confidant.
Back in 2012, with losses mounting, an obdurate Mallya was finally unable to funnel any more cash. Kingfisher ceased flying in October 2012 and had its licence revoked in February 2013. Mallya’s ego had got the better of him. With lenders, employees and suppliers baying for blood, Mallya was forced to do a deal with the world’s largest spirits company, Diageo, to whom he sold a majority stake in USL on July 2013. He had bet the farm and lost.
The USL board also accused the Mallya management team of Rs 2,000 crore of financial malfeasance. A PwC audit commissioned by the USL board claimed a diversion of funds worth Rs 1,337 crore to UB Holdings as an intra-group loan. Mallya was humiliated when the USL board publicly asked him to step down in April 2015. He refused, only to arrive at a settlement for a paltry $75 million by February 2016.
Netherlands-based Heineken, with 42 per cent, now owns the majority stake in his brewing empire United Breweries which came to them after they brought Scottish & Newcastle which had originally picked up a stake in UB in 2002. Half of UB’s 32.8 per cent that Mallya holds has been pledged to various banks who have lent him money, and could be unloaded in the market at any time to realise their loans. UBHL, the holding company of Kingfisher Airlines, with its considerable real estate across the country, is a pale shadow of its former self today. It has a market capitalisation of a mere Rs 131 crore. UBHL shares that hit a high of Rs 1,378 in 2008, currently trade at Rs 27.5 as on today 18 April, 2017.
Mallya sold valuable stakes in Hoechst, Sanofi and other companies his father had carefully accumulated to feed his hungry aviation monster. The Poddars of Zuari Agro hold a majority in what was once Mallya’s pride, Mangalore Chemicals & Fertilisers, a loss-making firm he acquired and turned around.
The gift to his son Siddharth, now 28 and an aspiring actor in the US with no interest in business, was in hindsight, ruinously expensive. It reduced the billionaire to a millionaire.Ends

About the Author

Sachin Murdeshwar
Sachin Murdeshwar is a Sr.Journalist and Columnist in several Mainline Newspapers and Portals.He is an ardent traveller and likes to explore destinations to the core.

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