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According to highly placed sources, while DoR has not supported the proposal, the DIPP has asked for deferment of the proposal on the grounds that it is under examination. As a result, FIPB also has deferred its decision for the third time since April.
Vijay Mallya-promoted United Breweries Holdings Ltd (UBHL) had sought post-facto approval from FIPB to issue 6.4 million convertible warrants of Rs1,110 each to FirStart Inc. Sources said the DoR did not support the proposal on various grounds, including that FirStart had already raised Rs6 billion as loan. It had paid UBHL barely Rs2.7 billion as upfront money and for converting 1.9 million warrants into shares and what's left is Rs3.3 billion. FirStart's entire paid up capital is held by Lalitha Mallya, Vijay Mallya's mother and a part of the promoter group.
FirStart which is unable to raise money says it will forfeit the 10% amount paid relating to the balance 4.4 million warrants. When contacted, UB spokesperson declined to comment. Sources said UBHL had informed DoR that FirStart is not in a position to bring the balance amount of Rs 4.41 billion for conversion of 4.4 million warrants and will forfeit the 10% amount paid.
Of the proposed Rs7.08 billion, FirStart already paid Rs708.9 million, 10% upfront when 6.3 million warrants were issued to it in December 2007. Rs1.7 billion was also paid when 1.9 million warrants were converted into shares in January 2008.
DoR had said that the security given for money raised by FirStart with the guarantee of Vijay Mallya and lien on warrants shows that gap between the net worth of Rs5.22 billion of Mallya and Rs6 billion which was raised is not explained as it is not able to subscribe the balance warrants now."
DoR also noted that UBHL had informed that the promoters are yet to decide on how FirStart will repay the loan. If FirStart defaults then Mallya as guarantor has to repay the amount. Since Mallya's net worth is India-based, the Indian funds eventually will be in effect with the source of funds for investments by FirStart, it said.
DoR has also urged the Department of Economic Affairs and the Department of Industrial Promotion and Policy to pore over the proposal in which UB has sought permission to make downstream investments.