Rise and Fall of Vijay Mallya

Vijay Mallya perfectly personifies all the good and bad within the Indian business ecosystem. Ever since young Vijay took over his father’s business in 1983, he has been the brash, dashing, hardworking and very ambitious young man who dared to dream big. The story of how he changed course of the legacy business and took it to dizzy heights, reflects the good about Indian business opportunity and his equally rapid decline, represents the inherent faults in the system. Vijay Mallya had it all and more, and he could have continued his growth story to truly arrive as an extremely successful international business tycoon but for poor business advice and misplaced priorities, where his personal ambition overtook the company’s.

The beginning

Contrary to popular perception, United Breweries was not started by the Mallya family. Its genesis goes back to 1915, when a Scotsman Thomas Leishman set up the company in Madras to manufacture and supply beer to troops in World War 1. This was a big opportunity for the company which made good profits by the time World War II set in. Vittal Mallya, Vijay’s father, joined the company at the age 22 and by 1947 was elected to the board of United Breweries Limited. A year later, he became the Chairman. By 1951, the company started to manufacture liquor under the ‘McDowell’ brand name, which was the first Indian Manufactured Foreign Liquor. Under Vittal Mallya’s stewardship, the company grew adding polymer, battery, pharmaceutical and foods to the group’s portfolio. Meanwhile, Vittal Mallya began to groom his son Vijay to ultimately join the business. He gave him the best education and then sent him overseas to get exposure and train with Hoechst – now Sanofi Aventis in the US, and Jenson & Nicholson in UK. Once Vijay joined the business, he was given charge to grow the beer and liquor vertical and also encouraged to look at overseas expansion. Vittal Mallya’s untimely death in 1983 saw Vijay take full control of UB Group and he was appointed Chairman at the age of 28.

An interesting anecdote

Vittal Mallya was known to be a man of integrity and hard work. Having come up the hard way, he respected the value of money. There is a story out that one day, young Vijay lost ‘one’ paisa while playing. Vittal Mallya promptly debited the loss to his son’s account. The incident is a reflection in contrast to the profligate son’s values that today has 17 banks hunting him down to reclaim their loans. But more of that later.

Vijay Mallya takes over

Early staffers recall young Vijay as being hard working and very ambitious, he was also aggressive and would like to push his point of view. In 1983, Kingfisher beer trailed Mohan Meakin’s Golden Eagle but soon, under Vijay Mallya’s leadership, UB group began to surge ahead in both spirits and beer business. Soon the group expanded and diversified. By 1988, Mallya had taken up NRI status to focus on transitioning UB into a global conglomerate, something Vijay Mallya became obsessive about. The same year, UB acquired Berger Paints in a leveraged buyout and this gave the company a footprint over four continents. He subsequently exited the business in 1996, for a handsome amount. In 1993, when software business was seen as a lucrative opportunity, he set up a software company in the US and had it listed on NASDAQ. In 2007, UB acquired Scotch maker Whyte and Mackay, and American Vodka maker, Liquidity Inc. Under Vijay Mallya’s leadership, UB had diversified into real estate, engineering, IT, bioengineering, aviation, media and sports. At its peak, the UB group had grown into a $12 billion group.

The Honour before the insults

Vijay Mallya was conferred Doctorate of Philosophy in Business Administration by Southern California University, Irvine, USA. He has been nominated as the ‘Global Leader for Tomorrow’ by the World Economic Forum, and France has conferred its highest civilian award ‘Officier de la legion d’Honneur’ on him. He is a serving MP of the Rajya Sabha and has received several awards and recognitions during his career. But now, he has undone all the good work that he and his father worked so hard to build.

The turning point – when ambition overtook business logic

Mallya had it all going for him. His UB group controlled 60% of market share in India and he had the best chance to continue to grow the spirits and beer business overseas. But for many, success goes to the head and Mallya was no different. At one point, he loved being compared to Richard Branson, the UK based maverick tycoon, who owns Virgin Atlantic and a host of other businesses. Mallya wanted to be counted amongst top international business tycoons and tried to live up to that image, with all the glamour and girls that came with it. He loved being called the ‘King of Good Times’ and actually started believing it and this was the start of his downfall. UB Group’s core business was liquor and beer and Mallya should have stuck to focusing on the same. In fact, in the early 90s, he himself pushed his group to stay focused on growing and dominating the liquor division. But with India opening up and with Indian companies rapidly diversifying, Vijay Mallya too wanted more. At the time, airlines seemed to be a dynamic business that could give him the attention and glamour he so craved and this was his first step towards disaster. He knew nothing about the business but tried to dominate the professionals who did into his point of view of how an airlines should run. His decision to buy a range of commercial aircraft without bothering about maintenance arbitrage or cost consolidation, led to Kingfisher Airlines bleeding, at a time when Indigo continued to grow and remain profitable. The difference? Indigo stuck to one type of aircraft only and spaced its acquisition to optimize its cash flow and profitability. Mallya, on the other hand, was busy doing photo-ops at international airshows for aircraft acquisition that he was never going to acquire. Entering the airlines business certainly felt good with all the glamour and parties but it drained the Group, forcing it to make a series of bad financing decisions, leading to a debt of over Rs 9,400 crore and with 17 banks now hunting him down. His father would have been a sad man today.

Crony capitalism to blame

This is a reality and fault of the Indian business system. Business and politics are too closely enmeshed without laws clearly defining the red lines. Banks are only caught between the two and often bend to the political masters or fall prey to business greed. Kingfisher story is neither unique nor the last and the fear is that little is being done to correct the fault lines. In early 90s, Indian Express ran a series of articles highlighting crony capitalism and how the banks were part of the system and open to misuse. Despite a lot of hue and cry then, little has changed. Kingfisher was a story waiting to happen but there are larger stories waiting to be told. Meanwhile, let’s stay focused on Vijay Mallya’s rise and fall and hope that the government finally wakes up to stem the rot. Or is that asking for too much? SC seeks date of appearing and asset declaration from Mallya by 21 April The Supreme Court has asked Vijay Mallya - the loans defaulter to declare all his assets by 21 April in addition to informing about the date when he can appear before its bench. In addition to this, the court has also asked Mallya to deposit a ‘substantial amount’ to prove his bona fides. Mallya is also expected to state the exact amount of money that he would be depositing with the Supreme Court. The next hearing for Mallya’s case is set for 26 April 2016. 16 April 2016- MEA suspended Vijay Mallya’s passport The Ministry of External Affairs (MEA) suspended the diplomatic passport of Mallya. On 13 April, the ED (Enforcement Directorate) had sought revocation of Mallya’s passport. The liquor baron had failed to appear before the agency thrice. 19 April 2016- Non-bailable warrant issued against Vijay Mallya The Enforcement Directorate obtained a non-bailable warrant against Mallaya from a Special Court in Mumbai on 18 April 2016. Special Judge P.R. Bhavake ordered that the warrant would be issued in a case under the Prevention of Money Laundering Act, on 19 April 2016. 21 April 2016- Mallya informed SC about Rs. 780 crore worth of his family assets abroad Mallya informed the Supreme Court that his collective family assets abroad amounted to Rs. 780 crore. He refrained from disclosing the details of these assets because he along with his wife and children were not NRIs (Non-resident Indians). Additionally, he also stated in an affidavit that no part of his overseas wealth had been acquired using loans made by banks to the budget carrier, Kingfisher Airlines. 27 April 2016- Mallya likely to move HC on passport revocation Showing no signs of returning to India, Vijay Mallya is likely to challenge the government’s decision to revoke his passport in the Delhi High Court. His lawyer has informed that the businessman wasn’t likely to return soon during the arguments in the Supreme Court. 28 April 2016- Mallya might be 15^th MP to be expelled Amid the fourteen MPs who have been expelled from Parliament (Lok Sabha and Rajya Sabha) since 1951, Vijay Mallya could be the 15^th MP to meet such a fate. The ethics committee of Rajya Sabha, headed by veteran Congress member Karan Singh, suggested the expulsion of Mallya, last week. Read More... SBI Writes-Off Defaulters’ Loans from Balance Sheet